Front End Engineering

Design of Oil and Gas

Projects: Critical Factors
for Project Success
Quite a large number of major oil and gas projects are failures with respect to
their costs, schedules, and operational performance. Owner companies and
contractors are struggling with the issues causing these failures. The Front
End Engineering Design (FEED) has been identified as an important factor
that plays a key role in determining the success of a project. However, the
FEED and the associated Front End Loading (FEL) do not get the attention
they deserve from the players in the business, namely, the owner companies,
FEED, and EPC contractors. While academic studies on the FEL and its fail-
ures are available, how the seeds of failures are sown during an actual proj-
ect FEED remains a mystery. The details are usually buried in the rubbished
computers and hundreds of files that are shelved in companies’ offices.
In this unique book, two experienced professionals, one from an owner
company and the other from an international EPC contractor, whose inter-
ests often oppose each other, join to give their perspectives about the project
lifecycle, its governance structure, gate system, complexities, contract mod-
els, and quality measurements.
In the second part of this book, they present case studies of projects gone
wrong, due to mismatches, errors, and inconsistencies in the FEED. These
case histories reveal how avoidable gaps and errors creep into FEED resulting
in project failures and how the review systems fail to detect them. Technical
and business professionals seem to underestimate the importance of FEED
in capital-intensive major projects, while focusing on short-term goals. The
underlying causal factors need to be addressed and resolved in time prop-
erly, for ensuring success of major oil and gas projects.
Written in a concise and practical style, with key takeaways at the end
of each chapter, this book will be a useful guide for practicing project and
engineering professionals in the oil and gas industry. Senior students and
researchers will find ideas and viewpoints given in this book worth explor-
ing further.
Front End Engineering
Design of Oil and Gas
Projects: Critical Factors
for Project Success
Perspectives, Case Studies, and
Lessons

G. Unnikrishnan and V. Pratapkumar

Designed cover image: © G. Unnikrishnan and V. Pratapkumar

First edition published 2024

by CRC Press
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and by CRC Press

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CRC Press is an imprint of Taylor & Francis Group, LLC

© 2024 G. Unnikrishnan and V. Pratapkumar

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ISBN: 9781032328645 (hbk)

ISBN: 9781032328652 (pbk)
ISBN: 9781003317081 (ebk)

DOI: 10.1201/9781003317081

Typeset in Palatino
by codeMantra
 For my grandchildren Sharan, Pooja, Kalyani, and Shankar who sometimes

show me that the world and projects are not as complex as we think they are.

G. Unnikrishnan

To my colleagues and professional associates from my trainee days up until now.

V. Pratapkumar
Contents

Preface........................................................................................................................x
About the Authors............................................................................................... xiii

Introduction.............................................................................................................1

Part I Project Lifecycle, Gate System, and Perspectives

1 Project Framework: Lifecycle and Gate System........................................5

1.1 The Main Elements of the Project Gate System Structure��������� 11
1.1.1 Inputs to the Stage Gate Review........................................... 11
1.1.2 Review Criteria........................................................................ 11
1.1.3 Review Results........................................................................ 12
1.2 Value Identification and Front End Loading (FEL)......................... 12

2 Stage 1: Identification................................................................................... 14

3 Stage 2: Feasibility and Statement of Requirement............................... 18

3.1 Stage Gate 2.1: Feasibility.................................................................... 18
3.2 Stage Gate 2.2: Statement of Requirements (SOR)........................... 20

4 Stage 3: Project Definitions/Front End Engineering Design (FEED)....... 27

4.1 Objectives and Key Activities............................................................ 27
4.2 Contract Models................................................................................... 28
4.3 Project Complexity............................................................................... 31
4.4 Contracting Strategy............................................................................ 31
4.5 Stage 3.1: FEED Deliverables...............................................................34
4.6 Summary of Assessment Criteria...................................................... 35
4.7 Stage 3.2: Project Endorsement and Approvals............................... 37
4.8 Key Points to Note in Stage 3............................................................. 38
4.9 View from the Other Side: Perspectives from the Bidder.............. 40

5 Stage 4: Construction....................................................................................42
5.1 Stage Description.................................................................................42
5.2 Deliverables and Approval Cycles.....................................................44
5.3 Activities Toward Completion of the Project................................... 46
5.3.1 Mechanical Completion......................................................... 46

vii
viii Contents

5.3.2 Pre-commissioning and Construction

Completion Certificate .......................................................... 46
5.3.3 Commissioning, Endorsement of Stable
Operations, Issuance of Provisional Acceptance
Certificate, and Turnover Certificate ................................... 48
5.3.4 Capitalization of the New Asset .......................................... 49
5.4 Key Points to Note............................................................................... 49
5.5 Perspectives – Owner Mindset and Viewpoints ............................ 51

6.1 Available Tools..................................................................................... 55

6.2 Additional Factors ............................................................................... 62
6.2.1 Standardization ...................................................................... 62

7.1 Project Organization and Leadership ..............................................65

7.2 Emotional Intelligence (EI) ................................................................ 66
7.3 Managing Studies during the Project .............................................. 67
7.4 Interface Engineering ......................................................................... 68
7.5 Project Risk Assessment .................................................................... 69
7.6 The Importance of FEED Data in Oil & Gas Projects .................... 71
7.6.1 Summary of Oil and Gas Process........................................ 71
7.6.2 Oil and Gas Separation Process ........................................... 73
7.6.3 Compositional Data in FEED ............................................... 73
7.7 Value of Project Data........................................................................... 79
7.8 Lessons Learnt .....................................................................................80

Part II Case Studies and Lessons

Contents ix

Bibliography.........................................................................................................125
Index ......................................................................................................................127
Preface

Why a book on Front End Engineering Design (FEED) in oil and gas projects?
The answers are several.
The progress of a project from concept to completion involves a large num-
ber of technical, financial, and management operations, performed by vari-
ous specialist agencies. Broadly, there are ‘deliverable’ functions like design,
engineering, estimation, procurement, construction, and commissioning,
which are tied together by project management supported by functions
like project controls, contract management, quality and Health, Safety, and
Environmental assurance. Each of these operations and functions is critical
for delivering a project successfully.
We (GUK and VPK) have together nearly four-plus decades of experience
in engineering and project management of oil and gas facilities.
Over the years, we have seen that one of the major factors for time and cost
overruns in oil and gas projects is the deficiencies associated with the engi-
neering process, predominantly in the early stages of project conceptualiza-
tion and definition, and prevalent to a lesser extent throughout the project
lifecycle. These early-stage activities are the foundations of subsequent steps,
and any gaps or errors at this stage will impact the downstream activities
adversely. There was also a realization that the basic issues associated with
such deficiencies can be corrected to a large extent by a change in approach
by project owners, consultants, and contractors.
Oil and gas projects are no strangers to time and cost overrun. Historically,
oil and gas projects have underperformed. However, such data were gener-
ally brushed under the carpet of high oil prices. In fact, a recent (2019) analy-
sis of 500 completed projects above USD 1 billion, during the past 5 years, by
a consultant, shows that 60% experienced schedule delays, while 38% had
cost overruns.
Now, the volatile oil market, fluctuating oil prices, and alternate energy
sources are posing serious challenges to the industry. For the industry to
survive, there must be a significant control of the time and cost overruns and
improvement in efficiency for new projects, with the associated benefits of
minimizing duplication of engineering efforts, and eliminating protracted
contractual disputes and litigation.
We had come across occasions where a little bit of care or supervision,
some more reviews, and/or the right person for the job would have prevented
major mistakes and goof-ups that erupted during Front End Engineering
Design (FEED), detailed engineering, construction, or operation causing
major financial loss. Assumptions made during FEED, instead of necessary
engineering studies, often crash during detailed engineering.

x
Preface xi

A sound Statement of Requirements (SOR) from another entity in the

owner company is often the basis for the FEED. Ambiguities, inconsistencies,
and gaps in the SOR sometimes surface very late in projects and will affect
the quality of FEED itself. A good FEED requires certain time, because it is a
game of studies, verifications, complex multi-disciplinary reviews, and feed-
back to the design staff requiring spending manhours. The right amount of
quality manhours spent on the job will result in better FEED.
Again and again, we have seen the owner companies’ lack of quality in the
data given to the consultant, who takes it in and rush to complete the FEED.
Owner companies often specify unrealistic FEED time, to cover up the time
lost elsewhere. Writing the requirements of FEED is a science, as well as an
art. Unless written carefully, it will seriously affect the project’s engineerabil-
ity and constructability. There is no substitute for the quality of the data from
owner companies and verification of the same by the consultant.
Detailed engineering is done usually by the Engineering, Procurement,
and Construction (EPC) contractor and involves preparation of thousands of
engineering documentation (called deliverables). These deliverables require
approvals from the client and go through several rounds of reviews before it
is finalized and stamped as ‘Good for construction’. Once the detailed engi-
neering phase is delayed or goes out of sync from the plan, it is very difficult
to catch up.
Experts from several engineering disciplines develop the FEED and volu-
minous detailed engineering documentation. Individual disciplines gener-
ally do a good job of what is assigned to them. However, when they are taken
together, sometimes their product develops flaws. It may contain errors,
inconsistencies, mismatches, gaps, etc., just like the misspelt genetic code
in the DNA sequence. Then, the project will have problems during detailed
engineering, construction, and/or operation. In short, it becomes the case of
individual excellence and collective failure!
There are several good books on project, engineering management, and
design of oil and gas facilities. Nevertheless, literature on how to excel in
FEED and engineering management with perspectives from both players of
the game, that is, from the owners’ and contractors’ sides, is indeed unique.
This book attempts to give the reader a sense of the conflicting interests and
reasoning when a project is analyzed from the viewpoint of a project owner
and a project contractor.
This book describes the more common pitfalls, errors, and blunders that
the stakeholders make while delivering capital projects with examples and
remedies. The viewpoints of the key players are sometimes diametrically
opposite. However, the changing oil and gas market demands a more realis-
tic, dynamic, and collaborative relationship, in order to survive. Unnecessary
duplication of design efforts, contractual litigation, and expenses must be
reduced. Otherwise, the industry may not survive at all! This book focuses
on this aspect and presents such a unique view of the subject to the readers.
xii Preface

Though the book is based on the FEED and EPC model of project execu-
tion, the principles can be applied to other types of contract models.
This book is primarily meant for engineers and executives working in the
oil and gas industry, related engineering consulting firms, and Engineering,
Procurement, and Construction (EPC) contractors, especially in the areas
of engineering, design, and/or project management. It will be useful to the
following:

- The owner companies when they write the project Statement of

Requirements (SOR) and prepare data for consulting companies
(FEED contractors).
- The FEED contractors when they develop the project design basis,
specifications and drawings, the deliverables, and the Tender
Documents for the project contractors.
- The EPC contractors who bet their money on the job, to evaluate the
FEED/Tender Documents for gaps and inadequacies, and to assess
the risks arising from such inadequacies, when they prepare the EPC
bid and later execute the project. It will also help them when formu-
lating project execution strategies, plans, and budgets.
- The academia: Faculty and senior students in project, engineering
and construction management, and allied disciplines can get practi-
cal insights into the development of FEED, which usually remain in
the files, manuals, and procedures of companies. They will also get
an insight into one of the major causes of project time and cost over-
run, and its possible remedies.

G. Unnikrishnan and V. Pratapkumar

About the Authors

G. Unnikrishnan has over 40 years of experience in the oil and gas industry
in India and Middle East. He retired as Engineering Specialist from a national
oil and gas company. His experience spans the areas of process design, pro-
cess safety, and engineering and project management. He advised compa-
nies on the quality of Front End Engineering Design and how understanding
and measuring the same can improve project delivery.
He is currently working as a consultant to design and engineering compa-
nies in India and abroad. His expertise are mainly in process design and pro-
cess safety and how process plant design and operations can be optimized
to improve process safety. He is an active researcher in the area and is the
author of a book on application of the Bayesian network methodology to risk
assessment of oil and gas equipment. He has also presented and published
papers on process safety in several international conferences and technical
journals.
He is a certified Functional Safety Engineer on Safety Instrumented
Systems. He holds a degree in Chemical Engineering from Calicut University,
MTech from Cochin University of Science & Technology, and PhD from the
University of Petroleum and Energy Studies, Dehradun, India.

V. Pratapkumar is a chemical engineer with over 40 years of experience in proj-

ect implementation in the oil and gas, petrochemical, and fertilizer industries.
His predominant areas of experience are in project management followed by
engineering and construction. He started his career as a Management Trainee
with Fertilizers and Chemicals Travancore (FACT) and has subsequently held
senior-level positions in UHDE (India), P.T. Polysindo Indonesia, Pipeline
Engineering (India), and Petrofac Engineering & Construction, UAE.
He retired from Petrofac in 2014 as Vice President and Head of Project
Services. He is currently advising L&T Hydrocarbon Engineering as a con-
sultant in project management competency development. His direct experi-
ence with project implementation is in India, Indonesia, Georgia, and Kuwait.
He has also held oversight positions for projects in several other Middle East,
Asian, and North African countries. His active involvement with EPC project
implementation in the oil and gas industry since 2002 has given him valuable
insights into the issues related to implementation of large projects, and the
critical role the quality of Front End Engineering Design documents plays in
the success of an EPC project.

xiii
Introduction

This is a book about Front End Engineering Design of oil and gas projects
and how it can be done successfully ensuring an error-free and executable
design. It is of utmost importance since oil and gas projects involve large
capital investments, considerable efforts, and long period of time.
Project Management Institute (PMI) offers the definition of a project as
follows:
‘A project is temporary in that it has a defined beginning and end in time,
and therefore defined scope and resources.
And a project is unique in that it is not a routine operation, but a specific
set of operations designed to accomplish a singular goal. So, a project team
often includes people who don’t usually work together–sometimes from dif-
ferent organizations and across multiple geographies’.
By the above definition, we realize that the engineering team working on
the project will also be on ‘collaboration on need to basis’ and will not stay
together even during the design or execution of the project.
From the above fact, it is clear that the challenges in design and engineer-
ing of a project are primarily in the integration of the huge number of activi-
ties that are parallel, sequential, dependent, or interlinked. The engineering
management of a mega project is no mean task. The engineering manager is
confronted with several questions on a daily basis. The issues can crop up
from many sides, from the upstream reservoir engineers who want to change
the input data during midway of the Front End Engineering Design (FEED),
from facility operations who want to relocate the facilities, to the civil design
engineer who does not have sufficient data about soil to design foundations
for the huge storage tanks.
In the race to meet the scheduled targets of completion, sometimes, assump-
tions are made, and decisions are taken, which in the later days during con-
struction or operation may prove fatal to the project or constructed facilities.
The decision to launch the ill-fated Space Shuttle Challenger is a classic
case of ‘schedule pressure’ overcoming engineering judgment. Some engi-
neers in NASA knew that the polymeric O ring that sealed the solid booster
rocket sections may lose its properties on that very cold launch day. But their
voices were not heard by the management.
The design of any complex piece of technology, such as oil and gas process-
ing facilities, refineries, aircraft, space shuttles, computers, nuclear plants, or
submarines, all requires careful attention to the details, as well as the overall
picture. Without the above, the chance of failure is quite high.
As mentioned in the preface, data tell us that failures are more common
than success in upstream oil and gas projects, which require corrective action
urgently. Given the post–COVID-19 situation and slow-down of the world

DOI: 10.1201/9781003317081-1 1
2 Front End Engineering Design of Oil and Gas Projects

economy, we cannot afford to be complacent and think of business as usual.

There is an urgent requirement to deliver projects within budget and sched-
ule, which are safe and reliable.
This book is an attempt in that direction. It does not elaborate on project
and engineering management in detail. However, sufficient background on
the above is given for completeness. It is based firmly on the authors’ first-
hand experience in management of mega projects in upstream oil and gas.
This book is structured in the same way as the project lifecycle, based on
the stage gate project progress, from the identification of the business oppor-
tunity, Feasibility and Statement of Requirements (SOR), definition of the
project through FEED, construction, and commissioning and handover. The
terminology could be different in some companies, but the content and intent
are the same for practical purposes. All the above sections relate to the per-
spectives and case studies from both owner’s and contractor’s sides, which
makes interesting reading.
Certain overarching issues are also discussed. Among others, it will cover
the following:
Understanding the project environment and Volatility, Uncertainty,
Complexity, and Ambiguity (VUCA): Very few engineering and project
managers understand the nature of the current VUCA that pervades through-
out the project lifecycle. Personal bias, conceptual errors, changing multina-
tional workforce, supply chain disruptions, contractual Gordian knots, etc.
all pop up when least expected. Managing them and moving forward could
become difficult.
Project risk assessment and management: It usually receives a confusing
treatment. It seems everybody knows the risks to the project, but the majority
of the actions taken end up being non-effective. Often, its use in projects is
not up to the mark.
Various engineering studies, including Value engineering, Health,
Safety, and Environmental (HSE) and Security studies: These are useful
and productive tools, but the project manager is sometimes challenged with
diluting the analysis or the results. When the project is a hundred-meter race,
the above studies can slow it down.
Emotional intelligence – the art of managing the project team and stake-
holders: The sensitive art of diplomacy is required to draw out the best per-
formance of the engineering team. These men and women are specialists of
extreme nature, and unless they carefully handled, the engineering deliv-
erables can be affected in many ways. Emotional intelligence is the key to
managing the players of the game.
This book is written in a concise style with minimum jargon and real-life
examples keeping in mind the practicing project personnel. The case studies
provided in a separate section will be of interest to researchers and students.
We hope that this book will be of good use to the professionals and aca-
demia, in achieving excellence in design and engineering.
 Part I

Project Lifecycle, Gate

System, and Perspectives
1
Project Framework: Lifecycle
and Gate System

A brief description of the project lifecycle is given here without going into
details.
Readers will recall that a project has definite beginning and end in time.
What is in between is the project lifecycle. The lifecycle is characterized by
distinctive features from its beginning to end. The above features are con-
veniently classified into five stages. They are listed in Table 1.1, in the gen-
eral terminology used in oil and gas, with an alternate common name in the
brackets along with a brief description.
A detailed description of each of the above stages, covering their scope,
implementation procedure, and potential challenges, is explained in the suc-
ceeding chapters.
Beyond the project definition stage described above, the majority of the
large oil and gas projects are implemented using the EPC model. The rea-
sons why this is a preferred model, and what the risks associated with such
a model are, are explained in the next few paragraphs:

• EPC is an acronym for Engineering, Procurement, and Construction.

It is a very simplified term, which covers a very wide range of
activities and responsibilities related to project implementation.
It defines a strategy of project implementation wherein a contrac-
tor undertakes the total responsibility for implementing a project
starting from design to commissioning. The other common strat-
egies for project implementation are Engineering, Procurement,
and Construction Management (EPCM), Cost Reimbursable, Build,
Operate and Transfer (BOOT), etc.
• In the EPC project model, a contractor takes full responsibility for
completing a project for a fixed lump sum price. The risk of fully
understanding owner’s (client’s-from the contractor point of view)
requirements, and of accommodating all possible uncertainties
inherent in implementing complex high-value projects is absorbed
by a contractor, for a substantial reward. What the owner gets is the
assurance of a project completion schedule, a project cost, and the
quality of the completed project. For a contractor, it is a ‘high-risk,
high-reward’ proposition.

DOI: 10.1201/9781003317081-3 5
6 Front End Engineering Design of Oil and Gas Projects

TABLE 1.1
Project Stages
Stage Number
and Name Description
1. Identification The original project ideas are explored and confirmed with respect to
need, utility, possibility, and fit to the company’s overall plans. Options
are identified.
2. Feasibility and The basic technical, Health, Safety, and Environmental (HSE), and
Statement of financial parameters of the proposed project options are studied to
Requirements confirm its compliance with the various parameters (technical, HSE,
(SOR) (Assess financial, schedules, etc.). The most optimum option is selected, and a
and Select) set of requirements (Statement of Requirements) is developed for the
next stage of project.
3. Project definition The project is ‘Engineered’ to give a clear definition of the scope of the
(Define) project and its requirements. At this stage, the cost estimates of the
project are refined and reconfirmed for financial viability, and the
technical scope of the project is set as a benchmark for project
construction. The resultant documentation from this exercise is the
Front End Engineering Design (FEED). This activity can be carried out
by the owner themselves inhouse, or by a specialist project
management contractor engaged by the owner.
4. Construction FEED documentation and associated commercial and financial
(Execute) documents form the Invitation to Bid (ITB) package, which is tendered
out. At this point in time the owner formally approves the expenditure
for the project. Project cash flows are planned accordingly.
The response to the ITB that is the bids, are received, evaluated, and
clarified, and the contract award/s are finalized. On contract award,
the primary responsibility would transfer from the owner to one or
more project contractors.
The contractor completes detailed engineering, the required studies,
procurement of equipment and materials, site development, and all
associated civil/structural construction works. The procured
equipment and materials are installed and connected. Construction
work related to all disciplines is completed.
5. Commissioning The installed project is tested for safety and integrity, and the various
and handover components of the project are sequentially put into operation, in order
(Operate) to establish that the project can produce the desired output and quality
as defined in the project definition stage and the contract.

• There are other possible implementation models, such as the

Engineering, Procurement and Construction Management () model,
the Reimbursable Cost model, the Cost Plus model, that have sub-
stantially lower involvement, responsibility, and risk, on a contrac-
tor’s part, as compared to the EPC model.
• The single biggest differentiator between an EPC model and the
other project implementation models is the degree of risk involved
and the ability to manage those risks. The success of an EPC project
is not based on merely ‘taking the risks’, but on a systematic process
of identifying and managing the risks involved. Can every single
Project Framework: Lifecycle and Gate System 7

potential risk be identified and managed? No, almost all can be

identified, but not all of them can be managed. So, EPC contractors
can at best try to mitigate the impact of the unmanageable risks.

In the earlier days, projects used to proceed from the stage to stage with gen-
eral administrative, financial, and management approvals. Rigorous reviews
between any of the stages with intention of differing or stopping the project
were not very common.
A ‘phased review process’ was introduced and practiced in NASA in the
1960s for development of space missions. Later, with the advent of software
projects the term ‘stage gate process’ became prevalent. ‘Water fall process’ is
another term that is used to visualize work that cascaded down from a previ-
ous phase to a current phase as a series of mini waterfalls.
Essentially, it means that a project can proceed to the next stage only after a
thorough review at the end of each phase. The reviews are usually conducted
by a team from senior management outside the project with the required
authority to take decision about the project. Relevant technical experts also
take part in the review. In typical oil and gas capital projects, the decision
involves any one of the following:

Proceed
After review of the presentation by the project proponent and the sub-
mitted documentation, the stage gate review committee gives go ahead
for the project to move to the next stage. This means that, at that point in
time, the project proposal satisfies the overall plans and requirements of
the company. In short, the business case for the project is strong.

Rework and resubmit

If the project in general meets the requirements, but needs certain
fine-tuning and minor changes, then the committee will recommend
reworking the proposal. The committee will give definitive recom-
mendations on the areas to be reworked and the desired outcomes.
A timeframe for resubmission is also suggested for completing the
rework and resubmission.

Reassess
In this case, the committee has determined that the project does
not meet the requirements and will request that the proposal need to
be reassessed. Reassessment means that the concept itself has to be
reviewed, which is different from the case of rework and resubmis-
sion, where the committee is satisfied with the project concept.

Stop
The decision to stop the project is taken when the proposal does
not meet the basic requirements and overall plans of the company at
8 Front End Engineering Design of Oil and Gas Projects

that point in time. It also means that the business case for the pro-
posal is weak. It may be revived at a later date when the conditions
become favorable.

The process can be visualized as depicted in Figure 1.1.

The same methodology can be used repeatedly for each of the stages result-
ing in the stage gate process for the entire project. Please see Figure 1.2. G1 to
G5 represent the stage review gates.
As seen in Figure 1.1, the key element for the success of the stage gate pro-
cess is a set of comprehensive and clearly written project governance pro-
cedures along with the structure and systems in place. Further, all project
stakeholders have to be fully aware of the existence and compliance require-
ments of the above.
The key players in the project lifecycle are defined below:

The owner company: The owner company invests money on the proj-
ect for definitive business and financial objectives. They own the
project. On completion and operating the project, the owner com-
pany, ultimately makes profits or suffers losses due to the outcome
of the project. In this book owner and the company has been used
interchangeably for the term ‘owner company’.
The project proponent: They are the department or entity in the com-
pany that proposes the project, based on the requirements and fore-
casts of their area. In oil and gas industry, it will be usually connected
to the operations support, oil field development, and upstream plan-
ning sections. The project proponent is part of the owner company.
The stages 1 to 3 are with the owner company who:

Stage progress: Proceed

Stage gate
Stage No. X review

Rework
Reassess
Stop
Stage gate review requirement and
expectations

-Committee
-Inputs
-Review criteria
Review results

FIGURE 1.1
Typical stage gate progress and stage gate review.
 Start End

2. Feasibility & 3. Definitions

G1 Statement of G2 G3 4. Project G4 5. Operate G5
1. Identification Front End & Monitor
Requirements Engineering Design execution

Value realization.
Value identification. Execution
Front End Loading
Project Framework: Lifecycle and Gate System

Financial Investment
Decision (FID)
Figure 1.2

Project lifecycle and stage gates.

9
10 Front End Engineering Design of Oil and Gas Projects

• Defines the project based on the company requirements.

• Arranges the finance for project implementation.
• Selects a Project Management Contractor (PMC) and an EPC con-
tractor. PMC contractor sometimes does the FEED and supervises
the overall project, while the EPC contractor executes the project.
Project Management Contractor (PMC)/Owner’s Consultant
In the cases where the owner selects PMC/ owner’s consultant,
they
• Prepare the FEED for the project, and a Tender Document based
on the FEED and the other technical and commercial require-
ments of the client.
• Act on behalf of the owner/provide technical assistance to owner
in monitoring and regulating contractor’s work.
The Contractor
• The EPC performer: The term ‘Contractor’ has been used inter-
changeably with EPC/ LSTK contractor
Other project stakeholders: The project proponent discusses the
project with the key stakeholders within and outside the owner
company, who will have interest in the project. For example, the
operations, maintenance, process safety departments, etc. will
want to have their requirements with respect to the lessons learnt
included in the project.
Local/state/national regulatory authorities, public interest groups,
external utilities, potential offtake entities, etc. also will have a cer-
tain say in the project. It is in the interest of the proponent to take
stakeholders into confidence and get the buy-in from them. The
internal dynamics of stakeholder opinions, which may have conflicts
sometimes, will have to be managed by the proponent up to Stage 2
and then on by the project entities.
The stage gate review committee: This is the committee that reviews
the project at each stage gate and takes decision on the fate of the pro-
posal. Generally, the committee members will be limited to 7, with
certain permanent and rotating members from senior management
supported by the necessary technical experts from the company who
are not otherwise involved in the project. The committee’s decisions
are not infallible. They can also err. Therefore, it is suggested that a
review of the committee decisions be reviewed periodically, say once
in 5 years or so with the data available on projects.
The investment decision makers: The investment decision on the proj-
ect is usually made by the board-level executives. In certain situ-
ations, in case of government projects, the level required for such
decision may go up to national-level authorities.
Project Framework: Lifecycle and Gate System 11

The project entities: They are the departments in the owner com-
pany who is responsible for executing the project and include the
design, project management, construction management, and proj-
ect control functions. The project entities will be led by the project
manager, who will be the single point of accountability for the proj-
ect. Their role usually starts from Gate G2, that is, once the project
proposal is selected, and the Statement of Requirements (SOR) is
finalized. However, sometimes, they are consulted very often dur-
ing Stage 2 itself.

The project, design, and engineering units in the owner companies

tend to be small these days, consequent to downsizing and retirements.
Nonetheless, sometimes, they are entrusted with certain projects by the
company (inhouse) to do the FEED. The project management basically
supervises the PMC.

1.1 The Main Elements of the Project Gate System Structure

1.1.1 Inputs to the Stage Gate Review
The input documentation and studies needed along with the formats
will be defined for each stage. They are the supporting elements for the
proponent’s case for moving the project forward. The project proponent
presents the proposal to the review committee along with the s­ upporting
documents. The documents can be generalized to a certain extent for
projects. However, the same needs to be customized for oil and gas
­
­projects. (For example, for building projects, there can be major differ-
ences). Even with oil and gas projects, there can be differences, which
need to be highlighted.

1.1.2 Review Criteria

Availability of the required documents alone does not ensure soundness of
the review. For an effective review, the right members, correct criteria, and
sufficient time are essentially needed.
The stage gate reviews are always supported by the relevant technical
experts in the company, who are not involved in the project. If such expertise
is not available, it can be outsourced.
Criteria for stage gate review usually consist of general as well as specific.
It is flexible based on the projects, rather than a fixed methodology for all
types of projects. To make it objective, sometimes, there is a scoring system.
More about this is given in the relevant chapters.
12 Front End Engineering Design of Oil and Gas Projects

1.1.3 Review Results

Review results have been discussed earlier. The decisions of the review com-
mittee are communicated on record without any ambiguity so that the pro-
ponent knows exactly what to do.

1.2 Value Identification and Front End Loading (FEL)

The owner company spends time and money to identify a potential proj-
ect during the initial stages of the project. All options and alternatives are
considered, and the values delivered by the best options are evaluated dur-
ing this stage. Sufficient and necessary details and documentation known
as Front End Loading (FEL) must be available at this point. FEL has been
recognized as one of the best industry practice and a key factor in ensuring
success of a project. In summary, FEL requires that:

• Sufficient time and resources are allotted during the early stages of
the project.
• The business opportunity is framed, fully explored, and evaluated.
• Risks are identified, and uncertainty range is minimized.

It may be difficult in some projects to judge the sufficiency of FEL. But with
experience, the team and review committee can determine the situation. The
review criteria itself may prove to be too generic.
The basis of all decisions must be trackable at the conclusion of gate G2.
The opportunities for adding value to the project diminish as the project
progresses, as summarized in the typical S curves shown in Figure 1.3.
Readers can appreciate that, unless careful governance is exercised in all
dimensions and aspects, projects can go terribly wrong.
Project Framework: Lifecycle and Gate System 13

Choose the right project Do the project right

High
Ability to shape Front End Loading
Cumulative project expenditure
Potential for value enhancement

Identification
Feasibility

SOR
FEED

Approval

Low
Front End Loading Time

FIGURE 1.3
S curves – decreasing opportunity vs. increasing cost.

KEY POINTS TO NOTE

• The governance procedure for the Project Gate System
should contain methods on how to handle special cases and
exceptions. For example, a revamp project with a simple
scope multiplied by n number of locations will qualify for
stage gate process by its cost, but the scope itself may not
merit the time and effort required for it to go through the
stage gate process. However, exceptions should not become
too common.
• Periodic review of the stage gate system with respect to the proj-
ects’ performance will be beneficial to correct the deficiencies.
• Gate G3 project definition is the most important gate, when the
owner makes the decision to commit to EPC contractor, often
known as Final Investment Decision (FID). After gate G3, the
opportunity for FEL is lost. Therefore, it is prudent to take time
at this point to consult with project stakeholders once again
(better still, conduct a workshop) and clear the pending issues,
understand the risks, and finalize plans on how to manage the
risks, if not done earlier. The decisions taken in the workshops
should be recorded meticulously.
2
Stage 1: Identification

Identification starts when a person, a team, or a section within an organi-

zation thinks about a need or business opportunity that has the potential
benefits to the company. Out-of-the-box thinking is required and encour-
aged during the identification stage to generate multiple concepts. Once the
concepts are firmed up, it usually follows the organization’s stage gate pro-
cesses and procedures to take the idea to the subsequent stage gate review
and approvals.
Requirements of activities during the identification stage in a highly sum-
marized form are given below:

i. Frame the business opportunity (Rationale, objectives, and scope)

A workshop with the stakeholders will provide the information
or indicate the lack of the same and help the project proponent in
developing business opportunity, background, scope, objectives,
rationale, etc., clearly.

Identification and engaging all stakeholders at the identification

stage itself are essential. Analysis of the stakeholder’s inputs will
provide information about possible interfaces with other projects
and other activities within the company.
Potential interfaces must be searched and identified in corporate
targets, forecasts, infrastructure plans and schedules, etc.
Such advance planning will bring out the aspects of coordination
efforts that will be needed in later stages of the project.
iii. Conduct a preliminary technical evaluation
The project proponent must carry out a preliminary technical
analysis at the identification stage. It may appear very approximate,
but it is needed to see the viability of concepts. It will also identify
each capital project element, for example, land, facilities, utilities,
infrastructure. Other parameters include the following:
• Indicative figures on uncertainty of project parameters.
• Applicable technologies.

14 DOI: 10.1201/9781003317081-4
Stage 1: Identification 15

• Health, Safety, and Environmental requirements, particularly

local government regulations and laws.
• Operational requirements.
iv. For moving forward to the review for Stage 1, organizations usu-
ally will require certain formats for submitting the documentation.
A summary of typical documentation requirements is given in
Table 2.1.

Once the deliverables are ready, it is sent to the stage gate review committee
for review and decision on the further course of the project.
The review committee usually consists of executives from other related
departments/teams of the company. The committee structure will be

TABLE 2.1
Stage 1: Identification Stage – Typical Documentation
Key Deliverables Content

Executive Business opportunity • Business opportunity summary

summary proposal • Cost estimate (order of magnitude, −30% to
+50%)
• Benefit realization
• Opportunity timeframe
• Risks and issues
• Requirements/plan for Stage 2
• Recommendations
Reference 1.0 Business 1.1 Introduction and summary
documents opportunity 1.2 Description (objectives, scope, etc.)
statement 1.3 Rationale (business drivers, objectives, SWOT
analysis, strategic fit)
1.4 Benefits, risks, issues, and impacts
1.5 Key assumptions
1.6 Key success factors
1.7 Timeframe (required/expected)
1.8 Technical assessments
1.9 Additional information required
2.0 Capital Investment 2.1 Cost estimate (order of magnitude, −30% + 50%
Analysis accuracy)
3.0 Stakeholder 3.1 Identification of stakeholders
management 3.2 Engagement requirements
3.3 Engagement action plan
4.0 Risks and issues 4.1 Major risks (risk register)
4.2 Potential issues
5.0 HSE compliance 5.1 HSE compliance and documentation
requirements
6.0 Lessons learnt 6.1 Lessons learnt (from previous projects)
7.0 Requirements and 7.1 Scope of work and schedule
Plan for Stage 2 7.2 Resource requirements
7.3 Contract funding requirements
16 Front End Engineering Design of Oil and Gas Projects

flexible so as to have permanent members and members on a rotation basis.

For example, members from project management, engineering safety, and
finance teams could be permanent, whereas those from teams that have on
part or intermittent involvement could be on a rotation basis. The review
committee also has the mandate to call any expert from within the company
for advice and recommendation.
The project proponent presents the project Stage gate 1 deliverables to the
committee. The committee goes by written assessment criteria. Typical cri-
teria used are given in Table 2.2. The criteria need periodic review to keep it
relevant and up to date.
TABLE 2.2
Stage Gate 1.0: Identification – Assessment Criteria
Assessment Review
Sl. No. Stage Gate 1.0: Identification – Assessment Criteria Comments
1.0 Review business opportunity statement
1.1 Is the business need or opportunity purpose and objectives
clearly understood?
1.2 Did the assessment cover critical success factors and key
challenges?
1.3 Are the major outcomes Specific, Measurable, Realistic, and
Timely (SMART)?
1.4 Will introduction of the capital project have an impact on the
timing and prioritization of other existing or proposed
projects?
1.5 Have the potential interfaces and other implications with other
capital projects, ongoing projects and operations been
identified/understood?
1.6 Have the capital project development options been reviewed
to adequately identify the scope for further studies?
1.7 Will the proposed studies of the development options provide
a sufficient definition of the requirements (e.g., production
facilities, utilities, infrastructure) to confirm the technical
viability of the business opportunity?
1.8 Have the key project uncertainties been considered when
assessing the capital project technical viability?
1.9 Have the potential technology challenges been reviewed?
1.10 Which technical aspects will require an in-depth investigation
to be conducted during the Feasibility stage (Stage 2)?
2.0 Review cost estimate
2.1 Has an order of magnitude cost estimate of the required capital
investment been provided?
2.2 Has the preliminary capital cost estimate been compared
against previous similar projects?
(Continued)
Stage 1: Identification 17

TABLE 2.2 (Continued)

Stage Gate 1.0: Identification – Assessment Criteria
Assessment Review
Sl. No. Stage Gate 1.0: Identification – Assessment Criteria Comments
3.0 Verify the identification and assessment of major risks
3.1 Have major risks been identified, including preliminary
mitigation approaches
3.2 Is the risk exposure acceptable?
4 Verify the identification of the key stakeholders
4.1 Have principal stakeholders been identified, their roles and
responsibilities confirmed?
4.2 Have the required stakeholder engagement actions been
initiated and if not what is planned?
5.0 Verify HSE compliance requirements
5.1 Have the HSE compliance requirements for this stage been
identified and appropriate plans and procedures initiated
and/or completed?
6.0 Plan for the way forward
6.1 Have the resources required for conducting Feasibility and
SOR assessed?
6.2 Will third-party personnel be required for Stage 2.0? If so, is a
service contract in place for the same?
6.3 How much contract funding will be required and what will be
the respective phasing for these funds?
6.4 Has the plan for Stage 2.0 been fully developed and
documented?
3
Stage 2: Feasibility and
Statement of Requirement

Once Stage gate 1 review is over and the gate is closed, Stage 2 is triggered
automatically. Here, the development options will be subjected to a struc-
tured evaluation process (Feasibility study) to assess technical, economic,
risk, and HSE perspectives.
In some companies, for convenience, Stage 2 is further divided into two
subsections, namely, 2.1 and 2.2. Stage 2.1 is Feasibility, and Stage 2.2 is
Statement of Requirements (SOR). The same division is used in the summary
given below.

3.1 Stage Gate 2.1: Feasibility

It will evaluate the options given from Stage 1 and narrow down the choice to
one project. In doing so, it should achieve the following objectives:

1. Ensure all feasible concept development options have been reviewed

and suitable conceptual designs prepared.
2. Ensure that relevant operations and maintenance requirements have
been reviewed and incorporated into the conceptual designs and
identified for development in future stages.
3. Prepare cost estimates and run incremental project economics to
support and justify the selected concepts.
4. Ensure that all development risks have been identified and ade-
quately reviewed.
5. Select the optimal concepts (projects) for further development dur-
ing the next part of the stage gate process.

Probably the best way to achieve the above objectives is to conduct

workshops/peer reviews with the identified stakeholders. The workshops/peer
reviews should be planned properly so that all stakeholders can be present.
The project proponent prepares the documentation to satisfy the above and
presents the proposal to the stage gate review committee.

18 DOI: 10.1201/9781003317081-5
Stage 2: Feasibility and Statement of Requirement 19

A list of key activities required for completing Stage 2.1 is given in Table 3.1.
At this point of time, the project proponent shall forward a copy of the
documentation to the project execution team (often called the project team)
so that they can be familiar and ready to participate in the review of the
upcoming Stage 2.2: Statement of Requirements (SOR).
TABLE 3.1
Stage 2.1 Feasibility- Key Activities
Sl.
No. Activity Responsibility
1 Mobilize the Feasibility team (members from relevant Project proponent
stakeholders)
2 Develop a list of concept alternatives Feasibility team
3 Evaluate and shortlist concept alternatives: Feasibility team
The Feasibility team shall use a structured evaluation method
for assessing each concept alternative. A set of suggested
parameters are listed below:
a. Technology
b. Schedules
c. Costs
d. Risks
e. HSE
f. Economics
Note:
3.1 The goal of the above is to apply an all-round and multi-
disciplinary approach to the evaluation and comparison of
alternatives under different and possibly conflicting
perspectives.
3.2 Sometimes, it may not be possible to define a concept
alternative that is superior to all its key parameters (e.g.,
technical feasibility, economic value, satisfactory risk, good
business fit). The alternatives with the most suitable
trade-offs shall be shortlisted as a result of the evaluation and
comparison process.
4 Perform sensitivity analysis Feasibility team
Sensitivity analysis shall provide additional comparisons and
test the remaining alternatives against different development
scenarios. The scenarios shall consider the variation of such key
parameters as Capex, Opex, production rates, and energy
prices to allow modeling the expected impact on the program’s
business objectives.
5 Identify and select preferred concept Feasibility team
If required for making the final decision, the project proponent
may use advanced decision-making tools (such as decision
trees).
The key outputs of the activities performed during this stage
shall be included in the Feasibility report.
6 Prepare the documentation as per the required format and Project proponent
submit to the stage gate review committee. A summary of and Feasibility
deliverables is given in Table 2.1 team
20 Front End Engineering Design of Oil and Gas Projects

TABLE 3.2
Stage 2.1 Feasibility – Summary of List of Deliverables
Stage 2.1: Key Deliverables Content

Executive Business opportunity • Selected concepts (projects)

summary proposal • Cost estimates
• Key economic indicators
• Benefit realization – update
• Risk and issues – update
• Requirements and plan for the next
substage
• Recommendations
Reference 1.0 Business opportunity 1.1 Introduction and summary
documents statement 1.2 Description (objectives, scope, etc.)
1.3 Rationale (business drivers, objectives,
SWOT analysis, strategic fit)
1.4 Benefits, risks, issues, and impacts
1.5 Key assumptions
1.6 Key success factors
1.7 Timeframe (required/expected)
1.8 Technical assessments
1.9 Additional information required
2.0 Capital Investment 2.1 Cost estimate (order of magnitude,
Analysis −20%/+40% accuracy)
3.0 Stakeholder management 3.1 Identification of stakeholders
3.2 Engagement requirements
3.3 Engagement action plan
4.0 Risks and issues 4.1 Major risks (risk register)
4.2 Potential issues
5.0 HSE compliance 5.1 HSE compliance and documentation
requirements
6.0 Lessons learnt 6.1 Lessons learnt (from previous
projects)
7.0 Requirements and plan 7.1 Scope of work and schedule
for Stage 2 7.2 Resource requirements
7.3 Contract funding requirements

The key list of deliverables for the stage gate review for Gate 2.1 is given in
Table 3.2, while a summary of the stage gate assessment criteria is given in
Table 3.3.

3.2 Stage Gate 2.2: Statement of Requirements (SOR)

The latter half of the Feasibility stage is known as Statement of Requirements
(SOR). In this stage, the selected concept/project is developed further as
SOR, which includes the technical details, schematics, preliminary computer
Stage 2: Feasibility and Statement of Requirement 21

TABLE 3.3
Stage 2.1 Feasibility – Assessment Criteria
Assessment
Sl. No. Stage 2.1: Feasibility – Assessment Criteria Review
1 Review the quality of the Feasibility study
1.1 Have the preliminary options identified in the previous stage
been expanded and sufficiently detailed?
1.2 Has an adequate range of alternative technical concepts been
studied to take into account different options?
1.3 Was an economic model utilized to compute
profitability indicators and evaluate alternativeness of concept
alternatives?
1.4 Have the concepts to be carried forward in the final selection
process been properly described?
1.5 Have the most promising concepts been compared against the
drivers consistent with business goals (e.g., economic value,
timeline for project delivery, capital requirements, environmental
impact, saturation of the spare capacity of existing facilities,
piloting of new technology)?
1.6 Has appropriate sensitivity analysis been performed to test the
most promising concepts against different scenarios?
1.7 Does the proposed concept optimize value and project trade-offs
(e.g., recovery rate Vs reserves, Capex Vs Opex, cost Vs quality,
risk Vs reward)?
2.0 Assess potential impact of project risks that define preliminary
risk control strategy and plan.
2.1 Have all risks been identified and potential impact assessed?
2.2 Has the risk control strategy been defined?
2.3 Has the risk management plan been defined to assign risk
ownership and formalize the monitoring mechanism?
2.4 Have any critical project risks been identified that require
immediate attention prior to proceeding to Stage 2.2?
3.0 Confirm that key stakeholder expectations are understood
3.1 Have key stakeholder expectations been reviewed and factored
during the Feasibility stage?
3.2 Have specific actions and accountabilities been planned to
manage key stakeholder expectations?
4.0 Verify Health, Safety, and Environmental (HSE) requirements.
4.1 Have the HSE compliance requirements for this stage been
completed?
5.0 Plan for way forward
5.1 Has the work plan for Stage 2.2: Statement of Requirements (SOR)
been fully developed and documented?

simulations and calculations, site selection and project area, preliminary

environmental screening, updating of project risk assessment. The SOR as a
minimum includes the following elements:
22 Front End Engineering Design of Oil and Gas Projects

i. Capital project scope and timeline.

ii. Report on-site visits and site selected.
iii. Plot reservation activities if any required with internal and external
stakeholders.
iv. Capital project data (feedstock, product quality, performance guar-
antee requirements, environmental emission limits, etc.).
v. Design philosophy (modularity, expandability, sparing, etc.).
vi. Conceptual designs (PFDs, plot plans, schematics, etc.).
vii. Long lead equipment.
viii. Material specification for major items.
ix. Specifications for special equipment and procurement strategy.
x. Requirements for any special services (market surveys, pre-qual-
ification of Original Equipment Manufacturers (OEMs), specific
engineering studies required during FEED, third-party inspection
services, etc.).
xi. Operability and maintainability considerations.
xii. Shutdown and start-up requirements, both hardware and software,
as required.
xiii. Automation and control system requirements.
xiv. Summary of Stage 1 and Stage 2.1 deliverables, as well as HSE
deliverables.
xv. Lessons learned from similar previous projects.

A formal capital project proposal is also prepared for information and

approval of the line management. This is mainly because, after Stage 2, most
companies will need external services for developing the project definitions/
FEED, whereas Stages 1 and 2 can be done generally inhouse, with external
inputs on a need basis. Capital project proposals will contain requirements
for carrying out the project definitions/FEED with respect to the project
scope, resources, funds, phasing, schedule for completing the required proj-
ect FEED, and timing for preparing a corresponding budget proposal. The
project proposal includes the deliverables for Stage 2.2.
The above two activities continue in parallel in most companies.
To achieve the above objectives, the key items to be reviewed and con-
firmed during the reviews with stakeholders will be typically the following:
a. Capital program. The proposed capital project includes all the
required elements such as dependent projects in accordance with the
company policies.
Stage 2: Feasibility and Statement of Requirement 23

c. Development options. The development options such as interfaces,

dependencies, potential overlaps, development timelines, etc. were
identified and evaluated.
d. Capital program risks. The uncertainties and risks associated with
the execution of the capital program have been identified and quan-
tified in the risk management plan.

f. Contracting strategy. A preliminary contracting strategy for exe-

cuting the capital program components (capital projects) has been
developed in consultation with the project management groups of
the company.
g. Departments/teams. At this stage of the project, the key players in
the project execution have to be identified and the FEED preparation
requirements discussed with them.

A peer review will be beneficial at the end of Stage 2.2. Such a peer review/
workshop can be conducted involving the concerned stakeholders, as well as
other experts from the company. If external expertise is required, the same
must be obtained.
Preparation of SOR is the responsibility of the department that proposes
the project (project proponent). However, it would be best, during this stage,
to involve the project execution (project management), project control, and
contracts departments so that their inputs can be incorporated into the SOR.
(As mentioned earlier, the project team will be already having a copy of the
SOR by with time).
The project team has an opportunity at this stage to review the SOR and
prepare their resource requirements, schedule, and budget estimates for cap-
ital project/s. If multiple projects are part of a capital program, each of the
projects shall be taken up for the above task.
At this stage, a reasonable estimate, FEED schedule, and project schedule
are prepared with the help of the above teams, and as noted earlier, a formal
capital project proposal is prepared to go along with the Stage 2.2 deliver-
ables for management approval.
A summary of Stage 2.2 deliverables is given in Table 3.4.
A summary of assessment criteria passing Stage gate 2.2 is given in
Table 3.5.
The project team shall prepare the key documentation ‘FEED execution
plan’ at this stage.
24 Front End Engineering Design of Oil and Gas Projects

TABLE 3.4
Stage 2.2 Statement of Requirements (SOR) – Key Deliverables
Key Deliverables Content
Executive Statement of Requirement • Project scope and development
summary (SOR) proposal requirements
• Cost estimates (−20% to +40%)
• Key economic indicators
• Benefit realization (estimates)
• Schedules
• Risk and issue update
• Requirements and plan for Stage 3.1
• Recommendations
Reference 1.0 Business opportunity 1.1 Introduction and summary
documents statement 1.2 Description (objectives, scope, etc.)
1.3 Rationale (business drivers, objectives,
SWOT analysis, strategic fit)
1.4 Benefit, risks, issues, and impacts
1.5 Key assumptions
1.6 Key success factors
1.7 Timeframe (required/expected)
1.8 Technical assessments
1.9 Additional information required
2.0 Capital Investment 2.1 Cost estimate (order of magnitude, − 20% to
Analysis + 40% accuracy)
3.0 Stakeholder 3.1 Identification of stakeholders
management 3.2 Engagement requirements
3.3 Engagement action plan
4.0 Risks and issues 4.1 Major risks (risk register)
4.2 Potential issues
5.0 Contracting strategy 5.1 Review and recommendation of feasible
contracting strategiesa for the project.
6.0 HSE compliance 6.1 HSE compliance and documentation
requirements
7.0 Lessons learnt 7.1 Lessons learnt (from previous projects)
8.0 Requirements and 8.1 Scope of work and schedule
plan for Stage 2 8.2 Resource requirements
8.3 Cost estimate for conducting FEED
8.4 Signed and approved CPP
a Review of possible contracting strategies is important at this stage of the project. To do the
same, there must be written down procedures to evaluate the nature, characteristics, and
parameters of the projects against the contracts that are best fit.
Stage 2: Feasibility and Statement of Requirement 25

TABLE 3.5
Stage 2.2: Statement of Requirements (SOR) – Assessment Criteria
Sl. Assessment Review
No. Assessment Criteria Comments
1.0 Review SOR and readiness for FEED
1.01 Is the SOR complete in all respects to allow the preparation
of an adequate FEED?
1.02 Has the project proponent included the project management
team/s in the review of SOR?
1.03 Has the previous operations and maintenance experience
been leveraged in developing the operations and
maintenance requirements for the new project?
1.04 Has the development of the preliminary contracting strategy
involved all required stakeholders?a
2.0 Update risk control strategy and plan
2.01 Has the risk control strategy been updated?
2.02 Have the project risks and potential impacts been identified?
2.03 Have all the major risks been evaluated and specific
mitigation actions and controls been identified?
2.04 Have any critical project risks been identified that require
immediate attention prior to proceeding to the FEED stage?
3.0 Confirm that key stakeholder expectations are understood
3.1 Has the key stakeholder expectation been identified,
reviewed, and factored into the SOR development process?
3.2 Have the specific actions and accountabilities been planned
to manage key stakeholder expectations?
4.0 Verify HSE compliance requirements
4.1 Have the HSE compliance requirements for this stage been
completed?
5.0 Plan for way forward
5.1 Has the FEED team structure been reviewed and the
required personnel skill and availability been assessed?
5.2 Will third-party personnel be required for execution of
Process Stage 3.0. Is service contract and personnel
available for the same?
5.3 How much contract funding will be required, and how it
will be phased?
5.4 Has the plan for Process Stage 3.1: project definition/FEED
been fully developed and documented?
26 Front End Engineering Design of Oil and Gas Projects

KEY POINTS TO NOTE

• Feasibility studies should apply the same set of criteria to alter-
native options to arrive at one single project to move forward.
• The Feasibility should evaluate both Capex and Opex.
• The impact of HSE issues should not be understated.
Environmental regulations are getting tighter all over the
world. Therefore, attention should be given for sustainable
solutions to engineering problems. Green technologies should
be evaluated.
• All technical/specialized studies required during the next
stage shall be listed in SOR. The SOR shall also give directions
as to what is to be done regarding the outcome of the studies in
either case, whether it is positive or negative.
• SOR contents need to be a consensus decision by the project
proponent and stakeholders from their associated depart-
ments. It should not be one person’s ego trip. Once the SOR
goes through the next gate to Stage 3, an associated stakeholder
should not work against the project.
• Ideally, the project proponent along with its associate teams
should present the SOR in a workshop. Important scope items,
specifications, and the unknowns and risks should be dis-
cussed with the participants. Items to be resolved should be
listed, and follow-up action and reporting should be meticu-
lously done.
• Packaging the project, the right way is important. If the scope
that is basically unfit for the EPC/ LSTK contract is packaged
out as such, it is likely that the project will fail to meet its expec-
tations and objectives
• External inputs and critical additional information required
should be identified and obtained at this stage itself, rather
than postponing to the FEED stage.
• A qualitative (still better, quantitative) evaluation of the quality
of the SOR will be helpful for ensuring the completeness and
soundness of the SOR. This subject is further discussed in a
later chapter.
4
Stage 3: Project Definitions/Front
End Engineering Design (FEED)

4.1 Objectives and Key Activities

The key objectives of Stage 3 are to:

• Provide a basis (known as Front End Engineering Design) for the

preparation of the project execution plan and conducting the detailed
engineering design.
• Refine the capital program/project cost estimates and schedules,
in line with the level of accuracy required to raise program/project
budget proposals.
• Confirm the soundness of the capital program’s key success fac-
tors (strategic fit, execution capability, operations targets, economic
viability).

Stage 3 responsibility is with project team/s of the company. They may be

assisted wholly or partly by a Project Management Contractor (PMC). At the end
of Stage 3, the definition of the scope, cost, and schedule and execution strategy
for the capital projects (and the overall capital program) must achieve the level of
definition required to make a sound investment decision in line with the compa-
ny’s strategic operational goals and financial requirements. Stage 3 is subdivided
into Stage 3.1: definition; and Stage 3.2: project endorsement and approvals.
The completion of FEED stage activities and respective deliverables shall
demonstrate that:

• A clear definition of the objectives for the capital program/projects

is available.
• Execution plan is valid and aligned with the company’s strategic
objectives.
• Cost and time estimates are defined with the required level of
accuracy.

DOI: 10.1201/9781003317081-6 27
28 Front End Engineering Design of Oil and Gas Projects

• Key stakeholders have been engaged in Front End Loading and

endorse the execution.
• HSE and quality management requirements are incorporated into
the project execution plan.

A summary of key activities during FEED is as follows:

1. Mobilize the FEED team (inhouse or outsourced).

2. Detailed review of Statement of Requirements (SOR).
3. Conduct FEED and finalize contracting strategy.
4. Development of project scope, and all deliverables agreed with the
stakeholders.
5. Finalization of cost (to the required accuracy) and schedule (to the
required level).
6. Update the economic model.
7. Update and finalization of preliminary project execution plan.
8. Finalization of all required documentation for Stage 3 review by the
committee.

4.2 Contract Models

There have been cases where major projects have been developed with FEED
to suit the EPC/LSTK contract, only to find later that that the model is not
feasible for all the component units of the projects. This is an important fac-
tor where owner companies and project proponents must pay greater atten-
tion. There are various contract models available other than the LSTK/EPC
model. For instance, in BOOT type of contracts, the contractor takes very
high risks technically and financially and the chances of poor project execu-
tion and performance are comparatively higher. Therefore, proper due dili-
gence studies and risk assessment must be done by both the owner (before
finalizing the contract type) and the contractor, before submitting the bid.
The contractor will be responsible for all technical details, evaluations,
and inputs, as required for the owner to confirm financial commitment.
Common contract models are summarized in Table 4.1 along with its basic
characteristics.
Apart from the above, owner companies now have several choices for out-
sourcing engineering and management services to expert companies/con-
sultants. It has pros and cons for the owner companies. The main advantage
is the small number of engineering personnel and resources that need to
be on company’s rolls. The disadvantage is that the capability for design,
engineering, and management of projects will be no longer with the owner
TABLE 4.1
Contract Models for Project Execution

Stage 3: Project Definitions/Front End Engineering Design

Sl. Main Phases and Responsibility: O – owner;
No. Contract Model C – contractor

Commissioning
Construction
Procurement

Op & Maint.

Ownership
Det Engg
FEED

Final
1 Lump Sum Turn Key (LSTK) Oa C Cb C C O O
2 Engineering Procurement & Construction (EPC) O C C C C/Oc O O
3 Engineering Procurement & Construction Management (EPCM) O C C/Od C/Od C/O O O
4 Cost plus O C C/Oe C/Oe C/O O O
5 Open Book Estimate convertible to EPC O C C/Of C/Of C/O O O
6 Re-Measurable O C C C C/O O O
7 Build, Own, Operate, and Transfer (BOOT) O Functional specs C C C C C Og
a In LSTK, the owner may sometimes go for a lesser definition of FEED, leaving the contractor to take the responsibility for fuller FEED definitions, while
specifying the guarantee requirements.
b Sometimes, to meet the long delivery schedule of critical equipment, design and detailed engineering of such equipment are done during the FEED stage
itself. The datasheets, specs, and purchase requisitions are finalized, and the order is placed formally on the selected bidder after a bidding process. The
order is then transferred to the LSTK/EPC contractor through a ‘Novation’ agreement.
Novation is a process by which contractual rights and obligations are transferred from the owner to the EPC contractor, with the consent of all parties
concerned, and the existing contract is replaced with the new contract. It is basically a triparty agreement between the owner, the supplier (OEM), and the
EPC contractor. It is called the ‘Deed of Novation’
c In EPC, the owner may sometimes do commissioning by themselves or outsource it to a specialist agency. The contractor will be required to provide com-
missioning assistance by way of equipment and manpower.
d In EPCM contracts, the contractor takes the responsibility for detailed engineering of the project and procurement of major equipment if so required, and
also performs the overall project management and construction supervision of the project. The EPCM contractor does not do the construction or take full
responsibility for delivering the project on time and within budget.
e Cost plus is a contract where all the hardware costs are reimbursed to the contractor by the owner. The contractor is paid a service fee for doing the work

29
related to the above. It can be fixed or variable based on the manhour cost. The construction and installation costs are paid separately to the contractor.
(Continued)
 30
TABLE 4.1 (Continued)
Contract Models for Project Execution
f Open Book Cost Estimate convertible to EPC (OBCE): In the OBCE method, the owner gets the FEED done either inhouse or through contractors. The second
contract will be on an OBCE basis where the full detailed engineering cost estimate is done by the contractor. The contractor is paid for the above. Up to this
phase, it is similar to the EPCM contract. The installed cost of each item including the breakup of contractor’s profit is disclosed to the owner. On the OBCE
basis, the owner’s and contractor’s transactions are fully transparent. The owner reviews the cost, technology, and OEMs of equipment and has a chance to
modify/amend the equipment/specifications and selection and influence the cost. Once the detailed engineering and the cost are final, the owner company

Front End Engineering Design of Oil and Gas Projects

has the choice of converting the packages of their choice as EPC contract with the same contractor. Otherwise, the project will continue on the OBCE basis.
The method of incentivizing the contractor is important in the OBCE method. Instead of a manhour basis or a fixed percentage of the project cost, where
the contractor may tend to inflate the cost, the contract terms often will be a fixed amount plus a percentage based on the contractor’s success in optimizing
and minimizing the project cost. Therefore, it will be in the interest of the contractor to work for optimizing the project and minimizing the cost during
detailed engineering.
If conversion to EPC is envisaged, a certain time must be allowed in the schedule to cater for the same.
g There are several variations possible within BOOT, some of them are as follows:
• Build and then operate on a separate service contract for a limited time. There are no specific guarantee requirements from the contractor during the
operation and maintenance service contract period except the availability of personnel and competent operation and maintenance of the plant. The
contractor does not own the facility.
• BOO, on a purely rental basis, in which the contractor has to dismantle and take away the plant after the limited time. The plant is owned and
maintained by the contractor. They have to meet the output and quality guarantee requirements based on the inflow fluid streams and utilities
provided by the owner. FEED and detailed engineering are by the contractor based on the functional specifications provided by the owner.
• BOOT, where the owner has the option to buy the plant at a previously agreed price after a limited period of operation by the contractor. FEED and
detailed engineering are by the contractor based on the functional specifications provided by the owner.
• There are a number of project funding methods available now, including the formation of Special Purpose Vehicle (SPV) for the project, which eases the
capital project expenses for the owner.
• Except for the methodology using SPV, mentioned above, all other BOOT types may not be suitable for large capital projects.
Stage 3: Project Definitions/Front End Engineering Design 31

companies. Important competencies such as design, and engineering and

project management capabilities will be lost from the owner companies. It is
a decision that must be carefully taken.

4.3 Project Complexity

In making choices on undertaking the project execution, one of the key fac-
tors to be considered is the project complexity. There are several references
available on the subject. However, whichever criteria are chosen to measure
project complexity, they should be practicable.
Scoring system of project complexity should involve at least the following
criteria as a minimum:

1 Lifecycle cost of the project.

2 Lifecycle duration of the project.
3 Project organization size and hierarchy.
4 Technology readiness.
5 Risk during project execution and operational phase.
6 Project financing options.
7 Visibility of the project owner.
8 Project owner’s authorization basis for the project.

Based on the scoring obtained for each of the above parameter, the projects
can be classified as high, intermediate, or low in terms of complexity.

4.4 Contracting Strategy

Following are the key points to keep in mind while thinking about
contracting strategies:

i. Contracting strategy for the project should be thought of suffi-

ciently early, preferably during Stage 1 identification itself. The
review of potential contract models must involve key stake-
holders, and contracting and legal experts. Such reviews must
be documented and progressed through Stage 2 Feasibility and
finalized by the end of Stage 2.2 SOR. FEED should be aligned
to the contracting strategy and model selected.
32 Front End Engineering Design of Oil and Gas Projects

ii. In order to help in choosing a strategy for project execution, a

matrix of both project cost and complexity can be considered.
Please see Table 4.2.

v. Once the scoring of the both the project cost/schedule and

project complexity are finalized, go to the matrix given in
Table 4.2 and select the horizontal axis scoring, for example
suppose the scoring classifies the project in ‘Medium’. Next
see the vertical axis for project complexity. Suppose the com-
plexity scoring places the same project in ‘Intermediate’. Then
the intersection of the vertical and horizontal axis give the
possible strategy as ‘Outsourced FEED. Execution by contrac-
tor-EPC basis’.

TABLE 4.2
Contracting Strategy Options Available Based on Project Cost/
Schedule and Complexity
Project Cost/Schedule Score
Small Medium Major
High Outsourced Outsourced Basic FEED
FEED. FEED. LSTK execution
Execution by Execution by
contractor-EPC contractor-EPC
basis. basis
Project Complexity score

Intermediate Inhouse or Outsourced Outsourced

outsourced FEED. FEED.
FEED, Execution by Execution by
execution by contractor-EPC contractor-EPC
contractor-EPC basis basis
basis
Low Inhouse FEED. Inhouse or Outsourced
Execution by outsourced FEED.
contractor FEED. Execution by
(construction Execution by contractor-EPC
only or EPC contractor-EPC basis
basis) basis
Note: 1. Smart outsourcing is the key to managing the entire project lifecycle.
   
Stage 3: Project Definitions/Front End Engineering Design 33

vi. Whereas, if both the project cost/schedule and complexity are

‘small’ and ‘low’ respectively then a suitable strategy could be
‘Inhouse FEED. Execution by contractor (construction only or
EPC basis)’.
vii. The actual numbers are not mentioned in the book for the
above scoring systems, since companies have different values,
based on the individual company policies.

ix. Do not throw unrelated scope items into a huge EPC project.
Such unrelated scope will prove to be hurdles toward smooth
execution of the project. For example, when the scope of a
major pipeline project is being defined, it will be unwise to add
to the project, scope on certain unrelated work inside process
facilities in another location.
x. It is always better to divide a huge mega project (usually greater
than USD 1 billion) consisting of different types of scope into
suitably framed and scoped subprojects, with well-defined
interfaces. For example, a mega project involving the construc-
tion of several storage tanks, pumping systems, aboveground
pipelines, submarine pipelines, and marine structures, if put
together as a single-bid package, could look easier initially
from owner’s view, but prove to be difficult later when it comes
to getting competent EPC contractors who specialize in all
the above. Depending on the scope, cost, and availability of
specialist contractors, such scope can be divided into several
smaller EPC contracts each dealing with one particular type of
scope, for example, pipeline design, engineering and construc-
tion in one package, marine pipeline and structures in another
package.
The main issue highlighted in such an approach is the effort
for coordination required for handling and interfacing several
projects simultaneously. The owner can always appoint a Project
Management Contractor to oversee, supervise, and manage the
coordination and interfacing effort. In such cases, adequate inter-
face engineering must be done and included in the scope before
sending out the Invitation to Bid (ITB). The money spent on such
an arrangement will be worthwhile.
34 Front End Engineering Design of Oil and Gas Projects

xi. Some owner companies keep accumulating changes and mod-

ifications inside their facilities, and when it becomes too com-
plicated in scope and high in cost, they put it out as an EPC
package. Firstly, such changes and modifications should have
been undertaken as part of routine Management of Change and
implemented as such, as and when the need arises. Secondly,
putting it together as an EPC package without adequate field
engineering to define the data, scope, and content has potential
for a high number of disputes with the contractor later on.

4.5 Stage 3.1: FEED Deliverables

A summary of the documentation required for completion of FEED (Stage 3.1)
is given in Table 4.3.

TABLE 4.3
Stage 3: Project Definitions/Front End Engineering Design (FEED) – List of
Deliverables
Stage 3 Key Deliverables Content
Executive FEED proposal • Project scope
summary • Project execution strategy
• Cost estimates (-10% to +15%)
• Key economic indicators
• Benefit realization
• Overall project master schedule
• Risks and issues
• Recommendations
Reference Project execution 1.1 Introduction (project description and background)
documents plan 1.2 Overview of the project including objectives, scope of
work, battery limits, cost, and schedule.
1.3 Execution plan (organization, governance, project
controls and procedures, contracting strategy, construction
methodology, etc.)
1.4 Procurement plan and strategy for long lead items and
bulk materials
1.5 Overall project schedule
1.6 Cost estimates
1.7 Project monitoring and control
1.8 Quality management
1.9 Risk management plans and procedures
1.10 HSE compliance
1.11 Communication management
(Continued)
Stage 3: Project Definitions/Front End Engineering Design 35

TABLE 4.3 (Continued)

Stage 3: Project Definitions/Front End Engineering Design (FEED) – List of
Deliverables
Stage 3 Key Deliverables Content
1.12 Performance management
1.13 Supporting plans (testing, pre-commissioning,
commissioning, operations and maintenance, training and
staff development, project close-out, etc.)
2.0 Capital 2.1 Cost estimates (−10% to + 15% accuracy typical)
Investment 2.2 Economic evaluation
Analysis 2.3 Draft budget proposal
3.0 FEED 3.1 FEED deliverables for all disciplines
package 3.2 Utility requirements and deliverables
3.3 Specific, Measurable, Achievable, Realistic, and Timely
(SMART) project execution goals.
4.0 Site 4.1 Approvals and permits
implementation 4.2 Site selection and reservation
plan 4.3 Site risk analysis
4.4 Plot plan
5.0 Operations 5.1 Operations requirements and strategy
and 5.2 Maintenance requirements and strategy
maintenance
strategy
6.0 Contracting 6.1 Procurement plan for long lead equipment
strategy 6.2 Procurement plan
6.3 Contracting plan including selection of a particular
contracting model and potential bidder list.
6.4 Change management procedure
7.0 Stakeholder 7.1 Stakeholder management plan
management 7.2 FEED close-out meeting and minutes of meeting and
sign off.
8.0 Risk and issue 8.1 Risk register updated
management 8.2 Issues and resolution
9.0 HSE 9.1 HSE deliverables pertaining to Stage 3
compliance
10.0 Lessons 10.1 Review of lessons from previous projects
learned 10.2 Recording of lessons learnt in current project stage
activities
11.0 Plan and 11.1 Scope and schedule
requirements for 11.2 Resource requirements
Stage 4

4.6 Summary of Assessment Criteria

The assessment criteria for Stage 3.1 are given in Table 4.4.
36 Front End Engineering Design of Oil and Gas Projects

TABLE 4.4
Stage 3: Project Definitions/Front End Engineering Design (FEED) – Summary of
Assessment Criteria
Sl. Assessment
No. Stage 3.0 Assessment Criteria Review
1 Confirm readiness for the Final Investment Decision (FID)
1.1 Is the project scope still aligned with the business strategy?
1.2 Has the project design been sufficiently developed to minimize the project
execution risk?
1.3 Do the project design and execution plan provide sufficient benefit
realization to support the execution of the program/project?
1.4 Does the updated economic evaluation continue to support an investment
decision?
2.0 Review of the FEED stage
2.1 Have the required engineering disciplines been involved in the
development of the FEED package?
2.2 Is the project design detailed enough to achieve a cost estimate with the
required accuracy?
3.0 Review the contracting strategy
3.1 Have the required stakeholders been involved in the preparation of the
contracting strategy?
3.2 Is the project execution plan detailed enough to identify the most
appropriate contracting scheme for the work packages?
4.0 Confirm the project scope, cost, and schedule
4.1 Have scope, cost, and schedule been sufficiently defined enough for
preparing a draft of the contract requisition?
4.2 Are the project scope, cost, and schedule detailed enough for preparing a
draft of the contract requisition?
5.0 Review and update the project execution plan (PEP)
5.1 Has the PEP been prepared?
5.2 Does the PEP accurately outline the execution strategy, the project
organization, staffing, and the contracting strategy?
5.3 Have all the necessary procedures and control systems to support
management and coordination of the project execution activities been
developed and documented?
6.0 Update risk management plan
6.1 Has the risk management plan been prepared?
6.2 Have all the major risks been evaluated and specific mitigation actions and
controls been identified?
6.3 Have any critical project risks been identified that require immediate
attention prior to proceeding to Stage 4?
7.0 Update stakeholder management plan
7.1 Has the stakeholder management plan been updated, and have key
stakeholder expectations been reviewed and addressed during the
FEED stage?
(Continued)
Stage 3: Project Definitions/Front End Engineering Design 37

TABLE 4.4 (Continued)

Stage 3: Project Definitions/Front End Engineering Design (FEED) – Summary of
Assessment Criteria
Sl. Assessment
No. Stage 3.0 Assessment Criteria Review

7.2 Have specific actions and accountabilities been updated to manage key
stakeholder expectations?
8.0 Verify HSE compliance requirements
8.1 Have the HSE compliance requirements for this stage been completed?
9.0 Plan for the way forward
9.1 Do the PEP, cost estimates, and schedule provide a solid basis for the
preparation of a budget proposal?
9.2 Has the plan for the next Stage 4, project execution/construction, been fully
developed and documented?

4.7 Stage 3.2: Project Endorsement and Approvals

The main objectives of Stage 3.2 are to:

• Confirm that the project planning processes such as project execu-

tion plan, HSE plans, resource plans, risk management plan, stake-
holder management plan have been endorsed and will properly
support the required project execution activities.
• Ensure that the cost estimates as to the required accuracy (usually
−10/+15% accuracy) are required. The cost estimation is completed
and placed on record usually called ‘Tender Estimate’.
• Ensure that all the other project execution business activities have
been completed in line with the required initiation of project execu-
tion (e.g., regulatory approvals, mobilization of resources, internal or
as Project Management Contractors (PMC)).
• Ensure that the required commercial, financial plans are in place to
support the initiation of the contract action activities.
• Conduct due diligence on the ITB package and prepare a due diligence
report. The due diligence report is best prepared by another team (or
third party) that did not participate in FEED or preparation of ITB.
• Initiate action for the required financial and management approvals.
Usually, the approvals follow the sequence given below:
• Initial approval for the budget proposal.
• Final Investment Decision (FID) or Approval for Financial
Expenditure (AFE).
38 Front End Engineering Design of Oil and Gas Projects

• Initiation of contract requisition.

• Approval of bidder list.
• Final Invitation to Bid (ITB) package (with review and inputs
from the contracts team).
• Confirmation of financial approval.
• Issue of Invitation to Bid.

The project management and associated design and engineering teams are
usually given a final chance to review and verify the bid package before it is
issued out.
The next steps in the process involve the following:

• Receive bids.
• Conduct technical and commercial bid evaluation. (This is usu-
ally done by a bid review committee, specially constituted for
the task from the relevant depts of the company along with the
contracts team. There will be pre-approved bid evaluation criteria
and plan.)
• Bid clarifications and confirmations with the bidders.
• Bid evaluation report and Recommendation for Award.

Note: Some companies go for a two-bid system, wherein the bids are received
in two separate parts (envelopes), one part containing the technical and com-
mercial aspects and other containing only the price.
The price bids are opened only for those bids that have been found suit-
able after evaluating technical and commercial bids. Price bids for unsuitable
techno-commercial bids are not opened at all, or in some cases, revised price
bids are invited from all parties based on a uniform techno-commercial basis
indicated by the project owner after review of all the technical and commer-
cial bids. The advantage of the above method is that it provides a fair and
transparent bid evaluation model for all participating bidders.

4.8 Key Points to Note in Stage 3

1. FEED is a key stage, after completion of which the company takes the
step forward to commit money and resources to go ahead with the
project.
2. Engineering management has an important role to play during this
stage. Leadership and resources need to be available at this stage.
Stage 3: Project Definitions/Front End Engineering Design 39

The engineering manager position must be manned by a suitable

person with adequate qualification and experience.
3. Schedules need to be finalized to provide adequate time for con-
ducting various engineering studies and safety studies. It must be
understood that these studies cannot be done in a rush. Some of the
studies have major impacts on the FEED and scope of the project
itself. Expertise and resources must be planned for such studies.
4. Engineering activities should be planned carefully not to end up
with HSE studies being on the critical path!
5. Resolving issues with stakeholders is a critical activity. The best way
to resolve is to have a numbered, coded and listed resolution sheet
with status updated periodically for each stakeholder and issue, dur-
ing the progress of FEED engineering work. Any unresolved issue
should be settled through workshops with participation of experts
both internal and external. No issue should be left unresolved,
because it could be raised up again by an unfriendly stakeholder
during detailed engineering of EPC contract execution. Such issues
could also become a bone of contention between the project owner
and the EPC contractor during the implementation stage, resulting
in project delays/cost overruns.
6. It is important that FEED should have the right balance. The FEED
strategy should be to specify the right parameters only and leave
the optimization part to the EPC contractor and Original Equipment
Manufacturers (OEMs). Ideally, FEED should not be over specified or
underspecified.
7. Engineering studies undertaken during the FEED should have clear
objectives and recommendations based on which the project man-
agement and stakeholders can take decisions. It should not be some-
thing like a research study, which should have been done during the
Stage 2 SOR.
8. Methods of improving the productivity of engineering (value
improvement practices) must be implemented and pursued con-
tinuously. Engineering activities should not find itself in a situation
where the reviews, resolution, and incorporation of stakeholders
comments take longer than the engineering itself!
9. Scope creep or ballooning is a common feature in almost all proj-
ects worldwide. It will be worth going into details of the same for
all owner companies. The project management must be vigilant for
scope creep and must set up a Management of Change (MOC) system
during FEED for tracking any scope changes and resolving them.
10. Cost estimates should match with engineering scope inclusive of the
latest revision. It is common to see costing made on a previous revi-
sion of engineering documentation.
40 Front End Engineering Design of Oil and Gas Projects

11. Any critical engineering study, which can significantly impact the
scope or specifications of a project as defined in the FEED, should not
be left for the project implementation stage, as this could adversely
impact the project cost and schedule.
12. The bid package is a set of documents that is to be understood by a
third party, who was not involved in preparing the FEED and who
would be unaware of any unspecified assumptions or criteria. It
should basically be clear and comprehensive when read by such a
third party. The above issue of readability, clarity, and comprehen-
sibility of the bid package is the single most important factor that
determines competitive bidding.
13. For major and mega projects, it is definitely worth spending time and
money in conducting a biddability or due diligence review on the
ITB package, preferably by a third party.

4.9 View from the Other Side: Perspectives from the Bidder
1. From the point of view of the EPC bidder, the FEED represents a
comprehensive and accurate detailing of all the critical require-
ments of the project owner. What is not clearly indicated in the FEED
is expected to be developed/optimized by the EPC bidder within
the limits of applicable International Engineering Standards/Good
Engineering Practices.
2. The general observation is that the FEED put out in most EPC Tender
Documents tends to be either over specified or underspecified. Both
these situations are potentially detrimental to the smooth EPC imple-
mentation. The over specified FEED specifies a lot of detail developed
within a short timeframe and with a minimum of resources. Such
details are likely to change during the detailed engineering phase of
the EPC implementation, and such changes can impact the cost and
schedule assumptions made by the EPC bidder at the bid stage. The
result would be protracted negotiations between the project owner
and the EPC contractor leading to delays and cost overruns. Also, in
many cases, an overspecified FEED restricts an EPC contractor from
developing technically superior and/or more cost-effective alterna-
tives, which could have benefitted all stakeholders.
3. An underspecified FEED could leave a lot of gaps in the owners’
essential requirements and a lot of ambiguous specifications, which
can have different interpretations at the time of detailed engineer-
ing. EPC contractors tend to plug such gaps and ambiguities with
‘fit-for-purpose’ solutions, as against a project owners’ expectation
Stage 3: Project Definitions/Front End Engineering Design 41

of a ‘best-in-class’ solution. The end result would be disputes and

protracted negotiations leading to delays and cost overruns.
4. It is recognized that it might not be possible in some cases for an
owner to develop a comprehensive and accurate FEED, due to limita-
tions in resources, time, or in some cases a lack of information/data.
In such cases, the contracting model must be changed to accommo-
date the possible changes in the future, due to detailed engineering
developments, in areas where the FEED is incomplete. The alternate
contracting models in such cases can be a ‘Quantity re-measurable
with fixed unit rates’ model or an ‘Actual cost plus service fee’ model.
An interesting case study of a project, which used a combination of
EPC and a ‘Quantity re-measurable with fixed unit rates’ model, is
given under case studies.
5
Stage 4: Construction

5.1 Stage Description

The construction or project execution stage as it is sometimes called of a proj-
ect is the stage where the responsibility of completing the project passes on
from the project owner to a contractor, or a group of contractors. The stage
involves execution of a set of inter-related and integrated activities, and deliv-
erables within a required timeframe. Typically, it consists of the following:

• Mobilization of the contractor.

• Mobilization of owner’s project execution team.
• Detailed engineering.
• Procurement, inspection, Factory Acceptance Testing, and
transportation.
• Offsite fabrication and transportation.
• Site preparation and on-site construction and installation.
• Mechanical completion and testing.
• Pre-commissioning.
• Commissioning.
• Start-up operations leading to Stable Operation.

The owner has already defined his technical requirements in the FEED doc-
ument prepared by him, stipulated his commercial requirements, and put
these together in a Tender Document, which forms the backbone of the con-
tract for project construction. The general structure of a Tender Document for
project construction would be as follows:

• A preamble, which states the broad objectives of the project, the

details of the project owner, and the nature of the final contract that
is envisaged.
• The commercial conditions of the contract, which specify the
commercial rules and regulations applicable to the contract,

42 DOI: 10.1201/9781003317081-7
Stage 4: Construction 43

governing laws applicable to the contract, contract price format,

terms of payment, guarantees and liabilities, dispute resolution
methodology, contract termination conditions, force majeure defi-
nitions, etc.
• The technical scope of work in the form of drawings, specifications,
and descriptions.
• The Health, Safety, Security, and Environmental protection require-
ments that are applicable to the project.

In most cases, the owner would require that all contractors who are bidding
for project construction comply with the Tender Document conditions fully,
without any deviations. Such a condition would ensure a level playing field
for all competing contractors, and also provide the basis for an easy and fast
decision-making by the owner. The alternative approach of allowing compet-
ing contractors to assume and specify their preferred deviations will result
in a complex and time-consuming techno-commercial analysis by the project
owner to decide on the best option. This process can also come under criti-
cism for subjectivity, favoritism, etc.
The following key activities will be conducted during the start of Stage 4:
construction:

i. Mobilization of owner’s and contractor’s project teams.

ii. Nomination of focal points (person responsible for replying to com-
munications and submittals from the contractor) from owner’s inter-
nal departments.
iii. Holding the project kickoff meeting.
iv. Review and confirmation of internal and external procedures for
managing the project interfaces.
v. Review and confirmation of project baseline schedule.

Other activities include the following:

1. Project execution plan, covering aspects such as detailed proj-

ect implementation schedule, project management organization
structure and mobilization plan, format and procedure for docu-
ment flow between owner, contractor, and any relevant third party,
change management procedure, progress measuring and invoicing
procedure.
2. Detailed engineering, where the technical scope of work specified
in the contract is elaborated to provide the specifications and docu-
ments required to purchase all equipment and materials required
for the project, for installing and connecting all such equipment and
44 Front End Engineering Design of Oil and Gas Projects

material, and for providing project infrastructure such as roads,

drains, area lighting, compound walls.
3. Purchase and delivery of all equipment and materials required
for the project. This process starts with the preparation of speci-
fications and commercial terms and conditions for purchase, and
goes through obtaining bids from approved suppliers, evaluation
of bids and selection of supplier, monitoring and stagewise inspec-
tion of supplier’s manufacturing work, Factory Acceptance Testing
(FAT), transportation of finished goods to project site/offsite fabri-
cation yards, storage, and issue of equipment and materials at the
project site for installation. Approval of certain vendors’ detailed
engineering documentation also will be part of the above.
4. Site infrastructure development works such as clearing and level-
ing, compound walls, roads and drains, area lighting, site offices and
stores.
5. Installation and interconnection of all equipment and materials
at site, including construction of foundations, support structures,
access ladders and platforms. Post-installation cleaning and testing
of installed components for certification of integrity and safety.
6. Pre-commissioning and commissioning of the total installed facility
in a phased manner in accordance with pre-determined sequence.
At the end of this operation, the facility is deemed ready to com-
mence commercial production.
7. Submission of operations and maintenance manuals for all the
equipment and systems in the facility.
8. Training of owner’s personnel as specified in the contract.
9. All through the processes described above, the contractor, along
with his assigned subcontractors, is the performing agency, and the
project owner and/or his assigned agents monitor, review, and cer-
tify the contractor’s work in accordance with a pre-determined plan.

5.2 Deliverables and Approval Cycles

For a major industrial oil and gas project, the number of deliverables
produced by a contractor at the construction stage runs to several thou-
sands. About 80% of these deliverables would be engineering deliver-
ables produced at the detailed engineering stage, and the balance 20%
would be purchase-related documentation, and project management
plans, procedures, and reports. At the start of the construction stage, a
Stage 4: Construction 45

Document Control Index is prepared, which will list all the deliverable
documents produced by the contractor, with issue/approval dates for the
various iterations of each document (issued for approval, issued for pur-
chase, issued for construction, issued for information, etc.). This is the key
document based on which the flow of information on a project is planned
and monitored.
The procedure for approval of project deliverables by the owner and the
approval cycles have a significant bearing on the schedule of a project. Out
of the several thousand documents that a contractor generates, the num-
ber of documents that the owner wants to review can vary from a small
number to a very large number. The number of documents for approval
will basically depend on two factors, viz., the aspects of the project that
the owner wants to closely control (as an example, the control and safety
features of the process units, the layout of the facilities, the specifications
for critical equipment, etc.), and the resources available with the project
owner for reviewing and approving technical documentation. Having a
larger number of documents for approval does not in any way change the
respective responsibilities of the owner and contractor. What it does is to
create a correspondingly large interface, which in turn presents increased
risks of delays.
Once the list of documents for approval is agreed between the owner, the
cycle of approvals will be, to a large extent, dependent on the quality of the
FEED documents. A FEED that contains a lot of ambiguities, or one that has
inadequate coverage of owner’s requirements, will result in a misalignment
between owner and contractor, and will consequently lead to multiple cycles
of issue of related documentation, and in extreme cases, it can result in a
dispute between the parties with respect to the scope of work. In either case,
there would be significant delays to the progress of work on a project, and
in extreme cases, there could be extended delays and potential cost impacts.
Another reason for excessive cycling of documents requiring approval is the
large number of agencies involved in the approval process from the project
owner’s side. Many of these agencies would not be fully familiar with the
project contract conditions, and their requirements and preferences might
not be consistent with the scope of work defined in the contract. A solution to
this problem is that the owner should have all concerned stakeholders in the
project to be familiar with, and in agreement with, the contract conditions
before the contract is finalized. The above topic is highlighted in the previous
chapters.
The approval of contractor’s documentation by project owner or his
nominated agent does not dilute the responsibility of the contractor, nor
does it increase the liability of the project owner. The value it adds is that
it acts as a ‘check and balance’ of the contractor’s engineering efforts, and
as a safeguard for the critical interests of the owner. If the approval process
is oriented toward the above goal, then it will certainly add great value to
the project.
46 Front End Engineering Design of Oil and Gas Projects

5.3 Activities Toward Completion of the Project

Similar to the number of activities required at the beginning of a project, a
sequence of critical activities is required to be executed toward the end of
the project. These activities require advance planning, proper stakeholder
management, and resource mobilization including vendors’ engineers and
commissioning experts by the contractor. A summary of typical activities is
given in Figure 5.1, together with a brief explanation.
Usually, owner companies have definitions for the terms associated with
mechanical completion, pre-commissioning, commissioning, and punch
lists to be completed at each stage. Further, all of the above activities may
not be taken up in certain projects. The following gives a summary of the
above terms in general based on which the owner company can define their
requirements, if they do not have definitions. It is important that definitions
are part of the contractual terms.

5.3.1 Mechanical Completion

Mechanical completion will be achieved when the facility systems and struc-
tures, or portions of the works, have been installed and tested for its system
fitness, in accordance with the final approved drawings and specifications
and applicable codes, regulations, and laws, and are ready for starting the
pre-commissioning activities.
Before the mechanical completion is declared, the owner’s team goes
through the facility and checks all aspects. The resulting observations are
recorded as Punch List A, which needs to be completed, before mechanical
completion can be declared.
Once the mechanical completion is declared, the Mechanical Completion
Certificate is signed by both parties; the facility is ready for pre-commissioning.

5.3.2 Pre-commissioning and Construction Completion Certificate

Pre-commissioning activities will deliver a functional facility without
the introduction of hydrocarbons, permanent energizing, or pressuriza-
tion of systems. Pre-commissioning activities will be conducted after
the approval of the pre-commissioning procedure submitted by the
contractor to the owner after all category ‘A’ punch list items have been
completed.
At this point, all ‘as-built’ drawings, operations and maintenance manuals,
training program, etc., should be delivered to the owner. Most owner compa-
nies insist on delivery of the above, before the certificate of the next stage is
issued.
A second punch list called Punch List B will be prepared to capture any
gaps and issues noticed during pre-commissioning.
 Stage 4: Construction

Mechanical completion Pre-commissioing Construction completion Commissioning Provisional Acceptance Turnover Final Acceptance

Implementation Mechanical completion Construction completion & Issue of Provisional Turnover Certificate Facility Performance
& Project Asset Guarantee tests & Final Project
of Punch List A & issue of Mechanical issue of Construction Acceptance Certificate
Report Acceptance Certificate close-out
Completion Certificate Completion Certificate

Completion of pre- Completion of commissioing

Completion of commissioing activities activities & endorsement of
Construction
Punch List A items & Puch List B items Stable Operation.

FIGURE 5.1
Activities toward project completion.
47
48 Front End Engineering Design of Oil and Gas Projects

The commissioning procedure is prepared by the contractor and describes

in detail the activities and system tests to be conducted in the process units,
under real or simulated (hydrocarbon) conditions. The same is submitted to
the owner company for its review and approval.
All category ‘B’ punch list items shall be completed to the satisfaction of
the owner company before the Construction Completion Certificate (CCC)
will be issued.
The issuance of the CCC to the contractor will indicate that all the pre-
commissioning activities have been successfully completed and the commis-
sioning activities can start.

5.3.3 Commissioning, Endorsement of Stable Operations,

Issuance of Provisional Acceptance Certificate, and
Turnover Certificate
The commissioning activities shall be conducted by a commissioning team
that will include representatives from the owner company, contractor, and
vendors, as deemed necessary.
During the commissioning, functional tests shall be performed in accor-
dance with a detailed commissioning procedure, to ensure the facility meets
the operational specifications.
The facility shall be operated to endorse ‘Stable Operation’, within
the design operating parameters for the period stated in the Contract
Documents.
A Commissioning Report endorsing and achieving Stable Operation shall
be issued by the commissioning team once the commissioning activities
have been completed successfully.
An appropriate Commissioning Endorsement Form shall be developed by
the owner company and endorsed by the commissioning team.
Upon approval of the Commissioning Report, the owner’s project team will
issue a Provisional Acceptance Certificate for approval by the operations team.
An appropriate form will be developed by the project team and endorsed
by the operations team.
The project team will issue a Turnover Certificate (TOC) to the contractor
after the following conditions have been met:

• The Provisional Acceptance Certificate has been approved by the

requesting team.
• The contractor has
• Delivered all operating and maintenance manuals.
• Delivered all tools, jigs, and templates.
• Completed the training of the company personnel.
• Delivered all ‘as-built’ drawings, manuals, documents, and records.
Stage 4: Construction 49

The issuance of TOC shall indicate that all requirements have been satisfied
in accordance with the Contract Documents and the facility is ready for per-
formance testing.

5.3.4 Capitalization of the New Asset

The project team will issue a Project Asset Report (PAR) to the project propo-
nent for review and approval.
The project proponent is usually required to review and respond/approve
the PAR within a reasonable time so that the asset can be capitalized.
The owner company’s Financial Group requires a final, approved PAR to
finalize the cost capitalization for the new asset in line with the owner com-
pany’s procedures.

5.4 Key Points to Note

Potential Pitfalls and Bottlenecks
There are hundreds of reasons why projects are not successfully com-
pleted, ranging from incompetent contractors, project owners running out of
money, etc., to natural calamities disrupting project implementation, govern-
ment policy changes rendering projects unviable, etc.
For the purpose of this book, our analysis is based on large projects pro-
moted by financially sound companies and managed by competent contrac-
tors, with no apparent adverse factors that can derail the project. And yet,
such projects can fail, or can end up with huge cost and time overruns.
A recent example was the following report in a leading business paper of
India, The Economic Times of January 4, 2019:

ONGC’S OFFSHORE DRILLING CONVERSION

PROJECT DELAYED BY 70 MONTHS, COST OVERRUN
OF RS 715 CRORE (USD 71.5 MILLION)
A project of ONGC, the country’s (India) largest producer of oil and
gas, that involves converting its oldest offshore drilling rig – Sagar
Samrat – into a Mobile Offshore Production Unit (MOPU) has been
delayed by more than 70 months and has faced cost overruns to the
tune of Rs 715 crore – a status report by Ministry of Statistics and
Programme Implementation (MOSPI) showed. (Authors note: origi-
nal contract value of approx. Rs 860 Crores).
The delay in deployment of the MOPU has been one of the main
reasons for the company’s shortfall in crude oil production for finan-
cial year 2016–17 and 2017–18, oil ministry’s petroleum and natural
gas statistics report stated.
50 Front End Engineering Design of Oil and Gas Projects

EY (Ernst & Young): Oil & Gas megaproject overruns to cost industry
more than $500 billion
A new report by EY finds that 64% of oil & gas mega projects continue
to exceed budgets, with 73% missing schedule deadlines. On average,
current project estimated completion costs were 59% above the initial
estimate. In absolute terms, the cumulative cost of the projects reviewed
for the report has increased to $1.7 trillion from an original estimate of
$1.2 trillion, representing an increase of $500 billion.

This was a project of national importance by the state-owned company,

which was the largest producer of oil and gas in India and contracted to a
competent agency. The exact reasons for this particular failure are not avail-
able in the public domain, but a case study of a similar project elsewhere is
given later in this chapter, which will reveal some chronic issues in such
large projects. This is not an isolated instance, in one specific country.
This is a worldwide phenomenon, as demonstrated in the study by Ernst
& Young in August 2014, summary of which is given in the second box
above.
In the authors’ view, the primary reasons for misalignment between the
owner and the contractor are as follows:

a. Inadequate or inaccurate information provided by the owner, based

on which the contractor prices and plans his work.
b. The conflict between the inadequately articulated expectations of the
owner and the time and cost limitations imposed on the contractor.
c. Inadequate understanding of the contract terms and conditions by
the contractor.
d. Inadequate preparation by the contractor when planning for work
in unfamiliar projects and geographies, remote locations, unfamiliar
local labor laws, and so on. In one situation, the processes and pro-
cedures for getting gate passes to owner’s sensitive sites took so long
that it upsets the project schedule, a factor the contractor had not
factored in at all in his planning!
e. It is the bidders’ responsibility to do due diligence on the final bid
submitted. If the bidder finds the owner’s FEED and bid documents
full of inconsistencies and gaps, it is better to declare it in writing
to the owner rather than taking a gamble to move forward, which
benefits nobody.
f. Protracted bid review and clarifications: If the bid review and clarifi-
cations take a long time, it is a sign of something is wrong with the ITB
and the bids. When the owner extends the due date for bidding several
times due to various reasons, it affects the back-to-back commitments
Stage 4: Construction 51

made by bidders to equipment vendors, as well as the construction

rates and assumptions made by the bidder. Sometimes, the time factor
affects the owner’s thinking itself. There are cases where during the
intervening time, the project proponent revised the scope and techni-
cal requirements to such an extent that senior management ended up
canceling the project, for sheer difficulties in getting finance approvals
due to major scope changes. The owner company personnel should
remember that major/mega project scope and technical requirements
are the end product of teamwork and collaborative effort over a long
period time. Unless the exchange of information and collaboration
within the owner’s stakeholders are sustained during the project exe-
cution, the project will get affected. Infighting within owner’s stake-
holders is often a cause for project delays.

5.5 Perspectives – Owner Mindset and Viewpoints

1. There is no fool-proof ITB: There is often thinking among

many owner companies that their FEED and bid documents
are ironclad and perfect. In fact, it is far from the truth. No
FEED and ITB can be perfect. The FEED is the product of
the choices exercised by the owner’s project team along with
stakeholders. The contract terms and conditions are, in 90% of
the cases, one-sided and written in favor of the owner. Errors
and gaps happen; unforeseen external events and time factors
come into play. Severe weather, pandemics, and government
policy changes are examples. There must be room for nego-
tiations and resolution of disputes in a fair manner, and both
parties must realize it. The authors’ suggestion is that both
owner and contractor include such mechanisms in the con-
tract conditions itself.
2. Concession Requests: Due to several factors, during the execu-
tion of the project, the contractor is often compelled to raise
‘Concession Requests’ (CRs) to the owner. While CRs arise due
to technical reasons, its impact could end up with cost and/or
time implications. They are required due to conflicts among
standards (between year of publication, international stan-
dards and company standards, obsolescence of the equipment
specs vis-à-vis availability in the market (that too sometimes
region- or country-wise, etc.)).
52 Front End Engineering Design of Oil and Gas Projects

The owner must respond to CRs as soon as possible. If a

response to CRs has to be practically possible, it is better to set
up an inhouse multi-disciplinary team, with members from
stakeholder departments to handle such cases. CRs should
not go through the routine organizational review process
since any delay in response may have an impact on the project
schedule itself.
The owner company should also track all the CRs from all
contractors. In the author’s (GUK) experience, a simple data-
base of all CRs will help in the above matter. By querying the
CR database, the owner company personnel can find out which
clause /specification/s and/or requirement is the root cause of
the CRs and can take actions to rectify /fix them so that it is
not repeated. The results will be surprising sometimes.
There were cases where a single clause in the owner com-
pany standard had given rise to a large number of CRs over
many years in several projects, and nobody knew about it. This
is because, in large owner companies, there will be several
project teams working independently and stakeholder per-
sonnel involved may not be the same. They will be unaware
of similar CRs in another project that popped up at different
times. Querying such CR database should be a mandatory
requirement during the due diligence process before the ITB
is issued out. The CR database should be set up, administered,
and updated by a department outside the controlling project
teams. All concerned owner company personnel can be given
access to query the database, generate reports, and forward to
the relevant department/s for action.
3. Micromanaging by owner companies: The owner should
not try to micromanage the contractors’ tasks and person-
nel. Day-to-day construction issues at the site shall be man-
aged by the contractor. While the owner company needs to
monitor the contractors’ personnel and site for security rea-
sons, that should not end up in interfering with contractors’
responsibilities.
4. Lack of resources during detailed engineering and con-
struction: When basic design issues are raised by the contrac-
tor during detailed engineering and construction, it should
be responded to promptly by the owner. The owner’s prob-
lem will be lack of resources since most often, the FEED con-
tractor who did would have left. It will be a good practice
for the owner to have an agreement with the FEED contrac-
tor, to have their concerned personnel available during the
Stage 4: Construction 53

detailed engineering and construction phases of the project.

A dedicated team consisting of FEED contractors’ person-
nel and owner company stakeholders will be the best. The
authors are aware of the logistics and practical problems of
acquiring manpower resources, particularly in cases where
the contract is awarded after a long time from FEED comple-
tion. In such cases, there must be careful advance planning to
bring onboard a competent engineering contractor. Sufficient
time also must be given to the engineering contractor’s per-
sonnel to familiarize themselves with the project and the ITB
documentation.
Similarly, when there are claims and adjustment orders to
the contract, it gets resolved and settled and forgotten. It will
be beneficial to the owner company to develop a database for
all Adjustment Orders (AOs) to the original contract populated
with relevant details. Again, querying the AO database will
reveal the errors, gaps, and inconsistencies in contracts and
will give the company a chance to study and rectify them.
5. Project histories: Projects are completed and forgotten. Owner
companies are notorious for their short memories of projects.
There is no dearth of technologies that can capture, store, and
enable efficient retrieval of the thousands of documents generated
during a typical project. But still, in most owner companies, the
situation is bad. There were cases where an important HAZOP
report could not be retrieved by the owner just 1 year into opera-
tion of the facility. It was required to verify critical hazard scenar-
ios when certain modifications were proposed by stakeholders.
It will be worthwhile to invest in a proper document storage
and retrieval system by the owner companies. Such a system
should be able to store not only the ‘as-built’ documentation,
but also all the documents finalized for the project. [Paper stor-
age is out of question!]
Investing time and effort in studying completed projects will
be ultimately beneficial. The usage of advanced analytics in all
aspects of projects will reveal what went wrong actually.
The topic is covered in detail under Chapter 9.
6. Project close-out report: The project team’s job is not over,
until the project close-out report is completed and presented
to senior management. This is a forgotten task in most owner
companies. Even if it is done, it will not contain anything
worthwhile for a reader who is going to read it after 4 or
5 years and trying to glean important information from the
report.
54 Front End Engineering Design of Oil and Gas Projects

The authors’ suggestion is to create systems and procedures

within the owner companies to enable the project team to
deliver a good quality report efficiently. For example, a good
format for the project close-out report can help in the produc-
tion of the report. Further, software-based systems and proce-
dures can be in place for inputs to the report. Project close-out
report delivery must also be part of the project quality man-
agement system.
Naturally, lessons learnt must be an integral part of the
close-out report. It is the project manager’s prerogative to
carefully review, weigh, and include the correct topics that
are lessons learnt. There is general confusion in owner com-
panies regarding as to what is to be included as lessons learnt.
It will be definitely worthwhile to spend some effort in devel-
oping guidelines for what is to be included as lessons learnt
in the report.
7. Project and engineering management training: In owner
companies, at least some of the personnel are accidental proj-
ect/engineering managers. They are thrust into the role when
they are least expecting or prepared for it. It shouldn’t be so.
Statistical studies have shown that project and engineering
managers must have a good grounding in their own discipline
before moving into the management roles. Oil and gas projects
are increasingly becoming complex, and the owner companies
should pay close attention to whom they are entrusting the
mega project delivery.
6
Quality of FEED: Measuring
It and Managing It

FEED quality can be measured. There are research projects that have proven
that, when you measure the quality of FEED using the right parameters, it
can predict with reasonable accuracy the outcome of the project, that is, its
probability of success or failure. The objective of this chapter is to show that
systems for measuring Front End Loading and FEED exist and are constantly
improving. Due to the proprietary nature of the systems, only summaries are
given here. Interested readers can look up the references given and see the
consultants’ websites for information.
Independent Project Analysis (IPA) is a consultant who measures the Front
End Loading (FEL) in which FEED is a significant part. IPA defines FEL as
‘the process by which a company develops definition of a project that was
initiated to enable the company to meet its business objectives’.
Another agency, Construction Industry Institute (CII) views FEED as part of
Front End Planning (FEP) and defines FEP as ‘the process of developing suffi-
cient strategic information with which owners can address risk and make deci-
sions to commit resources in order to maximize the potential for a successful
project’. Further, they define FEED as ‘a component of the Front End Planning
(FEP) process performed during scope definition (Stage 3), consisting of the
engineering documents, outputs and deliverables for the chosen scope of work’.
The FEED package typically also includes cost estimates, schedules for the
project, project execution plan comprising overall plans for detailed engi-
neering, procurement, construction, installation, and commissioning.
As more and more data are collected on various projects, properly classi-
fied, and subjected to measurement systems along with statistical analysis
and validation, the predictability becomes better. The following sections will
summarize the tools already available and suggest certain methodologies
that owner companies can use to start measuring and calibrating the FEL
and FEED quality for their own projects.

6.1 Available Tools

The tools available currently are proprietary tools, developed by consulting
companies. Some offer their services, while others offer the software and

DOI: 10.1201/9781003317081-8 55
56 Front End Engineering Design of Oil and Gas Projects

TABLE 6.1
Quality of FEED: Measurement Methodologies
Consultant Scoring Methodology Scoring Range
Independent Project Front End Loading Index 3 (best) to 12 (worst)
Analysis (IPA)
Construction Industry Maturity and Accuracy Total 1 (worst) to 100 (best)
Institute (CII) Rating System (MATRS)
European Construction Tasks and best practices for –
Institute (ECI) each task

train the owner’s personnel to use the same. The quality of FEED measure-
ment methodologies along with the respective consultants and the key fea-
tures of their products are summarized in Table 6.1.
As can be seen, all the methodology’s core concept is a scoring system
for various parameters in FEL. The measured parameters can go up to sev-
eral hundred. The measurement system also includes certain factors that
measure the project team dynamics and organizational efficiency while
handling major projects. Furthermore, the scoring system is different for
various industries, which makes it more relevant. The other aspect is the
validation/calibration of the scoring system with real-world projects. All the
above consultants have calibrated their scoring system to various extents
with data from real projects using advanced statistical tools. The methodol-
ogy requires tracking of the project progress to evaluate and provide feed-
back on the measuring system, and the consultants and owner companies
agree on a protocol for reporting the same. The greater the number of proj-
ects on which the technique is applied and tracked, the more accurate the
predictability becomes.
A summary of each methodology is given below.
Independent Project Analysis (IPA): IPA basically reviews the develop-
ment and deliverables from the initial three stages of the project, that is, Front
End Loading 1 (FEL1), which is equivalent to the identification stage, stage 1;
FEL2 equivalent to concept selection and Feasibility, stage 2; and FEL3 being
equivalent to project definition/FEED, stage 3.
The key factors, varying from three to five, in each of the above stages are
broken down into subfactors and further into various parameters, which
are assigned points on a scoring system. The scoring system has weightages
of each parameter, subfactor, and factors, and the weightages are adjusted
based on IPA’s assessment of the importance of each of them on the overall
index. The scoring system and weightages remain proprietary. IPA’s FEL
factors, which are similar to the qualitative assessment criteria under each
stage given in this book, are given in Figures 6.1a, b, and c.
Additional factors IPA considers are the alignment of functions (team prac-
tices), leading technology, project controls, and use of value improvement
practices (VIPs).
Quality of FEED: Measuring It and Managing It 57

(a)
FEL1-identification stage
Business FEL Index
Sum of indices for business case,
team dynamics, & analysis of alternatives

Business case Team dynamics Analysis of

alternatives
•Factor 1 •Factor 1 •Factor 1
•Factor 2 •Factor 2 •Factor 2
•Factor 3 •Factor 3 •Factor 3

(b)
FEL 2-Feasibility & SOR
Scope Development FEL Index
Sum of indices for site factors,
design status, project execution plan

Site factors Design status Project execution

plan
•Factor 1 •Factor 1 •Factor 1
•Factor 2 •Factor 2 •Factor 2
•Factor 3 •Factor 3 •Factor 3

(c)
FEL 3-definitions
Readiness FEL Index
Sum of indices for site factors, design
status, project execution plan (updates)

Site factor Design status Project

updates updates execution plan
•Factor 1 •Factor 1 updates
•Factor 2 •Factor 2 •Factor 1
•Factor 3 •Factor 3 •Factor 2

FIGURE 6.1
(a) IPA methodology – FEL1 Index, business case. (b) IPA methodology – FEL2 Index, scope
development and (c) IPA methodology – FEL3 Index, readiness.

The overall scoring range is from 3 (best) to 12 (worst), and IPA notes that a
score between 3.75 and 4.75 is the best practical range that the project should
try to achieve.
Construction Industry Institute (CII): CII’s techniques focus on FEED and
define two key parameters, namely, maturity and accuracy to measure the
quality of FEED. Maturity score measures ‘the degree of completeness of the
deliverables to serve as a basis for detailed design’. Accuraccy score evaluates
58 Front End Engineering Design of Oil and Gas Projects

100
High maturity High maturity
Low accuracy High accuracy
80
Maturity score
(0 to 100)

Low maturity Low maturity

Low accuracy High accuracy

0
75 100
Accuracy score
(0 to 100)

FIGURE 6.2
CII’s maturity – accuracy matrix.

‘the degree of confidence in the measured maturity of FEED deliverables to

serve as a basis of decisons.’
They have developed tools to measure the same. Ideally, the tools are suited
for large industrial projects, such as oil and gas projects, with a total installed
cost greater than USD 10 million. The tools are scoring systems with appro-
priate weightages and calibrated with real-world projects.
Once the scoring is done, the projects will fall into one of the categories as
shown in the matrix in Figure 6.2.
Obviously, only a few projects come into the high-maturity, high-accuracy
category.
The Maturity and Accuracy Total Rating System (MATRS) contains 46
maturity elements and 27 accuracy factors grouped into various categories.
The MATRS is built upon CII’s successful Project Development Rating Index
(PDRI) for industrial projects, which measures overall FEL versus project
success. A summary of the main components of the maturity and accuracy
assessments is given in Figures 6.3 and 6.4. All factors in maturity and accu-
racy components are assigned weightages depending on its significance.
Various statistical tests have been carried out by CII, and the results indi-
cate that projects that score higher on the CII MATRS, maturity, and accuracy
score have a higher rate of success.
European Construction Institute (ECI): ECI, as early as 1995, had pub-
lished a book titled ‘Total Productivity Management Vol I Guidelines for the
Conceptual phase’ to help personnel to check if they have complied with cer-
tain key factors. The important tasks ECI envisaged in the conceptual phases
were as follows:

• Consents and permits.

• Project definitions.
 CII maturity assessment components

Basis of project decision Basis of design Execution approach

•Factor 1 •Factor 1 •Factor 1
•Factor 2 •Factor 2 •Factor 2
•Factor 3 •Factor 3 •Factor 3
Quality of FEED: Measuring It and Managing It

Each of above factors will be given a Each of above factors will be given a Each of above factors will be given a
score. Ranges from 1 (complete score. Ranges from 1 (complete score. Ranges from 1 (complete
definition) to 5 (incomplete or poor definition) to 5 (incomplete or poor definition) to 5 (incomplete or poor
definition) definition) definition)

FIGURE 6.3
CII maturity assessment components.
59
 60

CII Accuracy assessment components

Project Leadership Team Project Execution Team Project Management Process Project Resources
•Factor 1 •Factor 1 •Factor 1 •Factor 1
•Factor 2 •Factor 2 •Factor 2 •Factor 2
•Factor 3 •Factor 3 •Factor 3 •Factor 3

Each of above factors will be Each of above factors will be Each of above factors will be
Each of above factors will be
given a score. Maxiumum given a score. Maxiumum given a score. Maxiumum
given a score. Maxiumum score
score can be 25 score can be 27 score can be 27
can be 21

FIGURE 6.4
CII accuracy assessment components.
Front End Engineering Design of Oil and Gas Projects
Quality of FEED: Measuring It and Managing It 61

• Financial strategy.
• Project strategy.
• Contract strategy.
• Project management organization.
• Construction philosophy.
• Procurement strategy.
• Design of permanent works.
• Design of temporary works.

Each of the above tasks was then taken up in a Benchmarking format and split
into several factors called ‘Best practices’. These in turn have a scoring system
1 to 4 for ‘Best practice were adopted’ to ‘Best practices could not be adopted’.
The scoring system results give an indication where the gaps are and what
needs to be improved.
As can be seen, basically all the above measurement systems on quality of
FEED recognize that there are certain key elements during the FEL and in the
FEED, which cannot be overlooked and should be executed to the highest qual-
ity. If they are not done, there is a good probability that the project will suffer.
The above finding should be an eye-opener for the owner companies. A
major project is an endeavor involving a combination of business, technol-
ogy, and engineering. All of them must succeed to call a project, success. FEL
and FEED costs come to about 2% to 5% of the project cost in most oil and
gas projects. Unless sufficient time is allowed for FEED, there are chances
that errors and mismatches can occur. Errors, mismatches, and gray areas
will cost dearly to the owner and the contractor in the later stages of a major
project. These have been proven by research.
Project success is defined typically as meeting the requirements of proj-
ect outcomes, namely, project cost and schedule, and production capacities
and qualities along with construction safety. The authors would add the safe
operational performance of the facilities for an initial period of 3 years, also,
as a measure of project success. Any one of the above cannot be traded off
against the other. It is an iron frame.
If an owner company has not yet embarked upon measuring their FEL/
FEED quality by proprietary methods, the authors’ advice is to do so
after the owner themselves has done a preliminary assessment of their
FEL/FEED and improved it. Proprietary methods require time and effort
and are generally rigorous. The proprietary consultant’s initial assess-
ment of FEL/FEED tends to be disheartening to most owners and their
consultants.
In a simplistic view, the process of FEED and ITB production can be viewed
as a set of systems that processes the inputs and produces the outputs as
shown in Figure 6.5. It must be remembered that there are several iterative
reviews and revisions of the documents in the process.
62 Front End Engineering Design of Oil and Gas Projects

To enable an initial assessment, the authors have included under Chapter

5 a list of deliverables to be finalized in Stage 3. There are also assessment
criteria provided to assess whether the FEED can proceed further as part
of the stage gate review process. What is important is that the above verifi-
cations and assessments should be carried out objectively by a third party
within the owner company who is not associated with the project and who
has management experience and technical knowledge and competence.
The third-party leader should have the acceptability of the stakeholders
for her integrity.

6.2 Additional Factors

Additional activities that the authors would advise will be carrying out
workshops to review the Frint End Loading (FEL) and its sufficiency. The
suggested workshop and its timings are given in Table 6.2.

6.2.1 Standardization
Standardize or perish will be a motto worth remembering and applying to oil
and gas projects. Many oil and gas projects suffer higher costs and delays due
to the customization of equipment for the project on insistence from owner
companies. Even equipment for the same duties differs from project to project
within the same company! It is the responsibility of the engineering manager
to actively promote standardization across the organization and projects.
Analysis of the system requirements, what is available in the market,
and detailed inputs from OEMs will be required to go through the pro-
cess. When the project involves procurement of a large number of one
equipment, for example, compressor, the old saying ‘Do not put all eggs
in one basket’ applies. It will be prudent to confine the selection to at least
two suitable types so that their performance can be measured over a long
period of time.

Inputs Outputs
Statement of Requirements
Technical
•Data, stakeholder inputs . Project organization
. People •FEED, cost estimates, schedule,
HSE requirements . Systems, process, & procedures Excecution plans
Contractual, commercial, . Governance methods
. Project quality systems ITB package complete
and legal requirements

FIGURE 6.5
Production of FEED & ITB as a set of systems.
Quality of FEED: Measuring It and Managing It 63

It saves time, effort, and money to repeat a successful design that is cur-
rently operational in a facility, with minimum changes. Please remember the
Space Shuttle of NASA, which was basically designed only once and oper-
ated several times. It even had a reusable hardware part!
The initiative of the International Association of Oil and Gas Producers
(IOGP) ongoing from 2016 known as Joint Industry Programme 33 (JIP33) is
a welcome step in this regard. They have already published 55 procurement
specifications with collaboration from the oil and gas industry, consultants,
and OEMs. JIP33 specifications are based on the existing industry stan-
dards and provide full requirements to purchase equipment and packages.
The published standards are free and can be accessed at the JIP33 website
([Link]
Other main factors that affect the quality of FEED are given in Chapter 7.

TABLE 6.2
Workshops a for Reviewing Front End Loading
No. Timing Workshop Subject Participants Objectives
1 After Defense of the - Project To understand:
finalizing project proposal by proponent - The justification for
the SOR, the project - Company business case of the
before proponent with project project.
submitting their team. management - Basic technical scheme
for stage and design and requirements
gate review unit - Data sufficiency, inputs,
- FEED contractor and plot requirements
- Stakeholders - Main interfaces
- Other specialists - Output and guarantee
requirements
Project execution plans
- Risks identified at this
stage
2 At 90% FEED completion - Company To review and check on the:
completion overall review by project - Compliance with SOR
of FEEDa the company management requirements
project and design - Project scope definitions
management team unit - Completion of all critical
and design unit - FEED contractor studies required in the
- Project FEED
proponent - Risks at this stage (what
- Stakeholders technical risks will be
- Other specialists passed on to the
contractor?)
(Continued)
64 Front End Engineering Design of Oil and Gas Projects

TABLE 6.2 (Continued)

Workshops for Reviewing Front End Loading
No. Timing Workshop Subject Participants Objectives
3 After Review of - Contract team/s To review and check for:
completion contractual/ - Project - Potential conflict, mismatch,
of the FEED financial/ management and gray areas between
and draft of commercial terms team and contractual and
ITB of the ITB design unit commercial terms and
- Contract team/s of - Relevant conditions with technical
the company stakeholders scope, requirements, and
with the project specifications.
management - Contracting strategiesb
team and design - Biddabilityc
unit
a The above-mentioned workshops are over and above the usual quality control measures
done during the FEED by the FEED contractor.
b Contractual strategies need to be finalized at this stage. Contractual/commercial/financial
terms and conditions are generally standard for oil companies, but need review for conflicts
and mismatches.

c It will be beneficial to have a biddability review of the ITB for complex, major, and giga proj-
ects by a third-party expert before it is issued out. She can be from within the owner company,
if available. A contrarian view will be helpful, at this stage, to plug all the holes so that the ITB
does not go wasted. For market to respond positively and to receive reasonably good bids,
such an exercise is essential.
7
Overarching Issues

The purpose of this chapter is to present certain overarching issues that usu-
ally get little attention in a project and are more likely to be ignored. These
are the gray areas that senior management and project managers would want
to push aside rather than confront and solve at the right time. But they can
prove disastrous later. They are as follows:

• Project organization, team, and leadership at owner’s side.

• Emotional intelligence.
• Managing studies during the project.
• Interface engineering during FEED.
• Project risk assessment.
• Value of project data.
• Lessons learnt.

They are discussed below briefly.

7.1 Project Organization and Leadership

Nothing is more important in a project than the project organization, team,
and leadership. Research has shown that owner side project and engineering
management play a key role in the project. It behooves the owner to have the
right project organization from early stages of the project. Integrated proj-
ect teams with members from different stakeholders in the company have
proven to be the best.
Owner companies tend to have several specialist departments. Senior
management must ensure that they are represented in the project team. The
best structure will be a core team with an ‘on-call’ membership of special-
ists. The integrated project team can meet at regular intervals during stages
1, 2, and 3 of the project with a carefully prepared agenda, and create and
maintain a list of issues with details of who has raised it and who are all
assigned the task of resolving it, and a summary of the resolution. Unresolved
issues remaining over a period of time must be flagged and raised to senior
management.

DOI: 10.1201/9781003317081-9 65
66 Front End Engineering Design of Oil and Gas Projects

Project and engineering management are complementary positions. If it is

a major or mega project, both the positions could be parallel and reporting
to the project director/senior executive. As with project managers, the engi-
neering manager’s position must be filled by a carefully chosen individual.
For major and mega projects, the engineering manager’s competency and
background are very important. Just any middle-level engineer in the owner
company will not fit the bill.
E. N. Merrow and N. Nandurdikar have written about the personality of
project managers in their book ‘Leading Complex Projects’. All their findings
about successful project managers are true for engineering managers also.
They have analyzed the data on many projects and interviewed several
project managers, based on the OCEAN personality model. The OCEAN
model is a widely accepted model of personality by psychology research-
ers. The model basically distills the various personality factors into 5 types
called the Big Five, namely, Openness, Conscientiousness, Extraversion,
Agreeableness, and Neuroticism (OCEAN), and measures them using statis-
tically validated scales.
Their finding is that successful project managers, though they are mostly
like the cohort of engineers from where they come, are unusually open to
new ideas and different approaches to problem-solving. They are generalists
as project managers are, but are equally good at dealing with all types of
work and people.
Furthermore, the finding is that for complex and mega projects, there needs
to be true leadership, more than project management. The above applies to
engineering management also.
Continuity of the owner side project and engineering professionals in a
project is another finding that should be taken seriously by owner companies
if they do not want projects to suffer.

7.2 Emotional Intelligence (EI)

Technical qualifications and competencies help engineers move up their
career, up to a certain extent. Afterward, when it comes to leadership in the
project and engineering management context, emotional intelligence is a key
factor.
EI is factored into four essential elements, namely,

• Self-awareness.
• Self-management.
• Social awareness.
• Relationship management.
Overarching Issues 67

Each of them is important for a leader. There is an Emotional Intelligence

Scale (EIS), which measures a person’s EI. Like the OCEAN personality
model, EIS has been used and statistically validated many times.
In their book, E. N. Merrow and N. Nandurdikar are unequivocal in
their finding that successful project managers all have excellent soft skills
and the majority of their time is spent on that dimension rather than on
the technical side. In complex projects, leadership plays an important
role and leadership requires a high level of EI. Owner company manage-
ment must take note of the research findings while installing their project
and engineering managers. The reader will be able to appreciate the role
of engineering management when they read the sections on project risk
assessment and interface management.

7.3 Managing Studies during the Project

Stakeholders in an owner company usually want several studies to be done
before finalizing the FEED, and as a result, the engineering manager often
gets stuck in the cycle of the ongoing studies, its reviews, and revisions of
the documents.
At the outset, whenever studies are requested in the Statement of
Requirements (SOR), the FEED team must review the same and understand
the difference between a research study and an engineering study. A research
study on an analytical side of upstream oil and gas requires collecting sam-
ples of oil, gas, and formation water and doing laboratory studies sometimes
in another country. The same is applicable to the mixing of the effluent water
from various reservoirs or for oils of different types, for example, heavy oil
with light oils.
The second type of studies will be on selection of equipment. FEED often
gets delayed because of studies put in for selection of equipment, for exam-
ple, selection of the compressor type. Such studies on selection require direct
feedback from actual users to be meaningful. A desktop study is not enough.
All the above takes time. The problem is that the FEED schedule does not
recognize these ground realities and does not provide enough time. In some
cases, due to paucity of time, the FEED team decides to limit it to a desktop
study, with dire consequences later.
Engineering studies should have definitive data available. The conclusions,
based on either results of computer simulations or OEM inputs, should be
actionable on the FEED technical documentation. The engineering manager
must be alert to the results of such studies because it can go either way, mean-
ing it can result in postponing or shelving of the project.
The other set of studies are from Health, Safety, and Environmental (HSE)
aspects of the project. The number of such studies can only go up with the
68 Front End Engineering Design of Oil and Gas Projects

passage of time. Problems can arise if the owner company does not have
guideline documents, systems, standards, or procedures to handle HSE stud-
ies. There can be endless arguments between the consultants and stakehold-
ers on various assumptions and results of these studies. Therefore, it would
help if each of the HSE studies be done on the basis of the Terms of Reference
and Assumptions register, which should be carefully finalized beforehand.
Engineering managers should ensure that adequate time is provided for all
HSE studies and that mechanisms and procedures exist for the timely incor-
poration of the comments from such studies. The author (GUK) has seen
projects where the HSE studies have delayed the FEED.
The other part is sometimes about who will pay for the HSE studies, the
owner, or the FEED contractor? HSE studies are to ensure the owner’s inter-
est and should be paid by the owner. It will be best for the owner company to
maintain a centralized team to manage HSE studies.
Lastly, it must be borne in mind that HSE studies such as Quantitative
Risk Assessment (QRA), Safety Integrity Levels (SIL), Fire and Explosion
Risk Assessment (FERA), though quantitative, are based on several critical
assumptions. It is easy to get into a cycle of jargon-filled technical arguments
on the above. The suggested solution is for the owner company to have a
panel of world-class experts on a demand consultancy basis, who will be able
to provide a way out of this ‘analysis paralysis’.

7.4 Interface Engineering

Proper interface engineering during the FEED requires time and effort,
and the engineering manager is accountable for the same. Interface is more
than just hardware tie-ins and tie-in lists. While the Piping, Electrical, and
Instrumentation disciplines usually develop comprehensive tie-in lists with
details, what is missed often are the software and procedural interfaces with
several entities and outside agencies. Plant operational data are routed to
owners’ existing systems, which could be old. Software/software version
incompatibility is another issue to watch out for. If there are any procedures
required, which call for reporting of information on new plant shutdown,
flaring, etc., to related outside agencies (e.g., a downstream consumer of the
oil and gas, government authorities), the same should be firmed up as a pro-
tocol with such agencies, to avoid confusion later.
When dealing with complex-mega projects with several work packages and
contractors, an organizational interface diagram and register can be thought
of, which will show the high-level interfaces between the work packages and
the entities on both sides of the interface.
An interface register or still better, a database should be maintained and
should be periodically reviewed by the engineering manager for updates
from the field till the ITB is issued out. An interface diagram should be
Overarching Issues 69

included for each interface. It will be beneficial to have the last update before
finalization of the contract, in order to capture as far as possible any changes
in the field. Many references and literature are available on the subject for
a better understanding of the subject. For major or mega-complex projects,
simple spreadsheets will not be enough. A suitable application software is
recommended. It will help improve the efficiency of interface management.

7.5 Project Risk Assessment

We live in a VUCA (volatile, uncertain, complex, and ambiguous) world. With
the pandemic and geopolitical situation, the resources are uncertain, supply
chains are unreliable, money supply is restricted, and project decisions are
more likely to be wrong than right. Project risk assessment is therefore all the
more important.
While the project risk assessment will look at several risks to the project, the
engineering manager will be focusing on the technical risks, namely, scope
definitions, stakeholders’ requirements, estimates/assumptions, specifications,
procedures, technology/equipment selection, delivery, operational reliability,
etc. The gray areas and unknowns need to be identified and recorded rather
than being swept under the carpet. The engineering manager should have a
clear idea of the technical risks that are being passed on to the contractor.
The author’s (GUK) experience is that project risk assessment should not
be done by the FEED contractor or the owner’s project or engineering team
involved in the project. If they do it, the objectivity will be lost and the risk
assessment results tend to get white-washed. It is best done by a third-party
expert outside the project. The expert can be inhouse or outsourced.
Some of the specific risks (apart from the usual technical risks in an oil and
gas facility) to identify and handle are as follows:

1. Complex project design criteria.

2. Scope added in stages or scope creep since giving the SOR or mid-
way through the FEED.
3. New technology/equipment untested in the field. (Unless a new tech-
nology/equipment is tested at the specific field conditions, accepting
the same will be a risk.)
Such new technology can be tested separately as a pilot project, but
not as part of a project FEED with a definitive schedule and budget.
4. Very stringent outlet specifications limiting the technology to one or
two Original Equipment Manufacturers (OEMs).
5. Too many interfaces, especially with outside agencies.
6. Complicated control systems.
70 Front End Engineering Design of Oil and Gas Projects

7. Emergency shutdown and depressurization and associated flare sys-

tems of a large facility. (There is no need to wait for the contractor to
find out that it is impractical to depressurize the entire facility at one
time!) Review the situation during the FEED itself and include in the
FEED package guidelines for the contractor.
8. Requests from stakeholders that are not engineerable practically.
(For example, theoretically, it is possible to have a cannon built for
sending a capsule by a moon-shot, but it is not safe or feasible practi-
cally with the current state of technology!)
9. Wrong packaging of scope. All of the maintenance works kept pend-
ing in a facility for several years cannot be packaged into an EPC
contract. Such scope requires extensive field engineering and site
investigations. Engineering of such scope is best done inhouse or
outsourced and executed on a cost plus or re-measurable basis.
Also, watch out for the inclusion of items not related to the main
project objectives and scope. For example, if the main project scope is
for a new long-distance pipeline, it would not be prudent to include
the replacement of equipment inside a facility away from the pipe-
line route in the contractor’s scope.

12. Low capital cost with high operating cost. When considering equip-
ment such as high-capacity compressors with high capital cost, there
is a risk of going in for the lowest bidder (capital cost) with high oper-
ations and maintenance costs of equipment, which is often hidden.
In such cases, a proper Life Cycle costing (LCC) will help in deciding
between two options, all other factors being equal. The same needs to
be clearly specified in the FEED with the LCC calculation methods.
Overarching Issues 71

7.6 The Importance of FEED Data in Oil & Gas Projects

During the authors’ long stint in upstream oil and gas design/engineering
and execution, we have come across several projects where the compositions
of inlet FEED were not appropriate, incomplete, or plain simple erroneous.
The ironic part is that all of these were avoidable!

7.6.1 Summary of Oil and Gas Process

A summary of the oil and gas processing fundamentals is given here, with-
out details, so that the reader can appreciate the case studies that follow.
The reservoir fluid from the oil well passes through several pressure ves-
sels in sequence as given in Figure 7.1.
The main equipment in the oil and gas processing lineup is usually the
following:
A brief description of the Figure 7.1 is given below:
A. Oil side:
High pressure (HP) 2 phase (gas, oil, and liquid) separator.
Medium pressure (MP) 2 or 3 phase (gas, oil, and water) separator.
Low pressure (LP) 2 or 3 phase (gas, oil, and water) separator.
Crude oil stabilization unit (if required).
Storage tank/s of crude oil.
Desalter train/s depending on the need to dehydrate and desalt the crude oil.
Export pumps to the pipeline.
Note: The HP, MP, and LP separators are lined up sequentially and known
as the separator train.
B. Gas side:
Compressor train/s HP/LP/MP. The gas is fed into the appropriate stage,
based on its pressure.
Gas sweetening unit/s – depending on the need to remove hydrogen sul-
fide (H2S).
Gas dehydration unit/s.
C. Effluent water side:
Effluent water treatment units: primary, secondary, and tertiary depend-
ing on the quality of the effluent water requirements for injection or disposal.
D. Others:
There will also be the associated safety systems, instrumentation and con-
trol systems, and utility systems.
Utilities and supporting systems, as well as buildings and infrastructure,
will be included in the project depending on the facility design.
 72

Gas Sweetening Units Gas Dehydration Units Gas Metering & Export
Gas to Pipeline
Gas Compression Trains
HP/MP/LP Stage

HP/MP/LP
Oil/Gas/Water Dry Crude Crude Export Crude Metering
Two / Three-phase Desalter Trains
Storage Pumpig System & Export
Separator Trains Crude to Pipeline

Multiphase Fluid from

ProductionWell heads
Inlet Production Manifolds
Effluent Water Treatment

Utilities &
Buildings & Effluent Water Storage
Supporting
Infrastructure
Systems

Effluent Water
Injection Pumping

Treated Water to
Injection Wells

FIGURE 7.1
Typical oil and gas production schematic – simplified.
Front End Engineering Design of Oil and Gas Projects
Overarching Issues 73

7.6.2 Oil and Gas Separation Process

The reservoir fluid is flashed in stages in the separator vessels, where it sepa-
rates into hydrocarbon gas and liquid if it is a two-phase separator, or into gas,
oil, and effluent water if it is a three-phase separator. The composition of the
outlet steams, and quantity depend on the pressure and temperature at which
it is flashed. The number of stages, high pressure (HP), medium pressure
(MP), or low pressure (LP), and its temperature or pressures are determined
using computer simulations. The simulators are compositional simulators,
and the results totally depend on the inlet FEED compositions and conditions.
The optimization of the conditions calls for several simulations and reviews.
Obviously, the more representative samples that are available, the better will
be the simulation results.
The optimization targets are the composition and pressure of the gas
and the separated oil. Optimization of temperature and pressure will min-
imize the compressor cost and gas treatment units and stabilize the crude
so that the oil has enough lighter components, which makes it more sale-
able, but to the right extent so as not to overshoot the pipeline transporta-
tion and shipping specifications.
The samples are obtained in several ways, such as bottom-hole samples
and surface samples. The analyses also are done in several methods to ascer-
tain the composition, as well as the properties of crude oil.
Crude compositions vary from C1, methane with a single carbon atom, to
C60 (known as fullerene with 60 carbon atoms). When the subsurface/ res-
ervoir teams report the analysis, it is usually up to a certain number of car-
bon atoms, say C20, and the rest are lumped together as C20+, known as the
hypothetical component. The properties of C20+ are given, generally specific
gravity and molecular weight, to make it complete. When specific gravity and
molecular weight are given, the simulators can calculate the rest of properties
and use it to solve the simulation model equations. Without the C20+ specific
gravity and molecular weight, the compositional data are incomplete and can-
not be used as input to the simulator.
The samples’ composition is reported as ‘mole percent’ or ‘mole fraction’
on a dry basis. The percentage of water is given as ‘water cut’, which is the
percentage of water in the total reservoir fluid. Therefore, to include the water
content as mole percent, the dry composition is simulated with the required
water cut values. The output stream of the simulations will contain the full
composition of crude oil including water.

7.6.3 Compositional Data in FEED

Situations in FEED compositional data summarized below illustrate the dif-
ferent situations.

a. Upstream Facility Design with Limited Samples

There have been cases where entire oil gas facilities were designed
with just one or two limited sample analyses. The problem with such
74 Front End Engineering Design of Oil and Gas Projects

compositions is that they often do not represent the real nature of the
reservoir fluid. Furthermore, it so happens that by the time the proj-
ect gets commissioned, many years (5–7 years) would have passed.
Reservoir fluid compositions from different wells could change,
especially water cut and gas-oil ratio (GOR). While taking the sam-
ples, the ambient conditions tend to be important. For example, the
samples taken during summer, winter, and other months would
vary in composition within a certain range.
The author (GUK) had come across a case of a high-capacity oil
and processing facility that was designed and constructed based
on just two samples from a couple of wells. As per the report and
recommendations from the subsurface teams, there was also a sep-
arate train to process a special crude containing a high percentage
of asphaltenes. The project took about 5 years to complete. After
start-up and commissioning, it was found that the entire gas side
has been overdesigned including gas compressor, gas dehydrating
unit, and related piping and control systems. Considerable time and
efforts were spent on modifying the control system and its settings
to make the system work. The gas side went onstream eventually
but was not operating in stable conditions. It was operators’ night-
mare with frequent upsets, shutdowns, and flaring of the gases!
And the special type of oil with high asphaltenes never material-
ized! There was no crude feed even to commission that special train.
It remained idle for a long time. The train had to be modified consid-
erably to suit a different type of crude.
b. Incomplete or Inadequate Compositions
As mentioned in the previous illustration, often the composition is given
without the necessary data to compute the properties of the hypotheti-
cal parameters such as C10+. Even if the contractor requests for the data,
it may be difficult to give, simply because they are not available. The old
sample cannot be recreated in the present. And any new sample com-
position can be different. There was an instance where the owner com-
pany could not provide any further data. The contractor was left high
and dry. They used all their wits and expertise on the simulation soft-
ware to produce the properties of the hypotheticals. Obviously, it did
not match with respect to the reality. This brings out another issue of
verification of the compositions, which is given in a subsequent section.
In case of the compositions, it is always recommended to do the
analysis of the components as high as possible, in the ranges of C30
to C40. The method of analysis used, such as chromatography must
be mentioned in the report.
c. Abundance of Compositions
Another issue the authors have seen is the abundance of sets of com-
positions. The owner company to protect its part throws into the
ITB technical documentation whatever compositions are available
Overarching Issues 75

from all the wells that could be connected to the oil and gas facility,
without informing the contractor on what basis or proportion the
streams will have to be mixed and fed into the facility. Of course,
computer simulations can be performed a million times, but what
will be the basis on which the process equipment will be sized?
There was a project where feed streams from four fields were con-
nected to the facility. Let us call the fields A, B, C, and D. There were
ten wells each from a field. Clearly, there were different combinations
as to how the streams (flowlines) from the well could be opened up to
the facility. Three of such connections are shown in Figure 7.2. All flow-
lines are connected, but all the valves are not opened simultaneously
to make the fluid flow go into the facility. The valves shown in black
are closed. The facility has a certain capacity for processing crude oil,
gas, and water, and the number of flowlines connected to a facility is
limited by the processing capacities of the facility. The connectivity is
available, but all of the wells cannot be opened up to the facility!
When the contractor requested for the combinations for use in siz-
ing the equipment, there were confusion and delay in responding to
the contractor’s request. Owner company’s subsurface and production
teams could not readily agree on the values. The contractor was asked to
submit different combinations for review. And when the owner thought
of finalizing one particular combination, it was found that such a com-
bination produced higher quantities of gas, and therefore, the size of the
gas compressor will be higher. The contractor promptly declined to use
the combination, stating that the gas compressor size and its costs will
be much higher than what they had bid for the work. Moreover, the ITB
did not include anything specific about the combination to be used by
the contractor and that they are not bound contractually.
d. Change in Input Feed Compositions after Signing the EPC Contract
One of the major impacts of a project is changing the compositions
after signing the EPC contract. Normally, the owner companies
accept the situation as a change to the contract and negotiate with
the contractor for cost and schedule impact. But such situations are
fraught with contractual and legal implications. Audits tend to view
the above occurrences suspiciously.
There is a chance that one of the original bidders to the ITB, espe-
cially the next lowest, raises the point of a major change soon after
signing of the contract, as a violation to the bidding norms. Mega
project contracts are quoted in a very competitive basis, and so all
bidders are alert to the situation.
Needless to mention, the above situation is to be avoided as far as
possible.
e. When Contractor Finds Changes to the Compositions
Another case that the author (GUK) has experienced is the requirement
placed in the contract for the contractor to carry out the crude stream
76 Front End Engineering Design of Oil and Gas Projects

1
2
3
4

Field area A
5
6
7
8
9

Inlet manifolds at facility

10

1
2
3
Field area B

4
5
6
7
8
9
10

1
2
3
4
areaCC
Fieldarea

5
6
Field

Inlet manifolds at facility

7
8
9
10

1
2
3
Field area D

4
5
6
7
8
9
10

FIGURE 7.2
Connectivity of flowlines from fields A, B, C, and D.

analysis and reconfirm the compositions. It so happened that when the

contractor did the analysis, the composition came out to be different,
with the potential impact on the compressor operating range.
Overarching Issues 77

The contractor requested guidance from the owner company.

Naturally, the concerned departments in the owner company burned
midnight oil to come up with a solution. Due to related delays, the
contractor had to be given an extension of time and certain cost
adjustments.
f. Soil Investigation, Geotechnical Data, and Site Data
There are several major and giga projects that are replete with rain
of change orders at the start of the project due to revisions in the
soil investigation and geotechnical data provided in the FEED, by
the owner.
The usual practice from the owner side is that during the start of
FEED, the soil investigation and geotechnical data work is given to
the concerned department or outsourced. The information in the
report received from the outsourced agency is used for the prelimi-
nary design of the foundations and structures. It is included in the
FEED/ITB. The quality of the report from the above must be checked
rigorously to avoid mishaps in the future. Most companies have a
checklist to verify the quality of the reports on the above. If such a
document is not available, it must be developed and put in place.
During the bidding process, there is practically no time for the bid-
der to verify the data provided by the owner. It is taken in good faith.
Later when the contractor does the soil investigation and if the
data are found to be at variance, problems crop up.
Therefore, the owner must do a thorough check on the data, espe-
cially if the project site is in problematic areas such as sand, marsh,
‘sabkha’, subsea, landfill. Large storage tanks in the above areas are
particularly vulnerable. Ground Penetrating Radar (GPR) survey
must be used to detect underground services.
Site data such as climatological data are usually developed once
and updated periodically by the owner companies. Climate change
and seismic zones must be updated based on the latest data from
research. For example, the severity of extreme weather (extremes
of temperatures, storms, floods, etc.) has increased in several areas
in recent years. Data that are to be used for the design of a facility
that will be in existence for another 15 to 20 years in the future must
consider the impacts of the above.

Important points to note:

1. Process equipment are not smart like human babies that grow
and learn as time passes. They can do the operational functions it
is designed to do within a certain window, called the operational
window. It can do this without problems 365 days in a year. Each
equipment has an upper and lower design limits for the process
parameters applicable to it, and the control system takes care of the
movements within the window (control range) smoothly. If any of
78 Front End Engineering Design of Oil and Gas Projects

the parameters exceed the operational window, process upsets, inci-

dents, and accidents can happen. The entire subject of process safety
has developed on the above concept of protecting the system and
subsystems from abnormal operations.
2. Specifying inlet feed compositions is important, and the owner has
to spend time and effort to develop the process models and do the
required simulation cases.
3. The design/engineering section within the owner company usually
does not have any expertise on subsurface, and they do not under-
stand or question the analysis that comes from the subsurface teams.
The design/engineering unit should acquire certain expertise in res-
ervoir engineering to properly understand the terminology of the
subsurface terms and its implications.
4. Compositions must be sufficient and should include the technical
information for input to the simulation model. Whenever composi-
tions are given, the owner company must specify how the several
input streams and compositions have to be mixed and fed into the
facility. If streams from a couple of wells from a particular reser-
voir contain high GOR, how it has to be mixed with other streams?
If the high GOR streams are included, naturally the gas quantities
and qualities will be impacted. In case of water cut, also the situa-
tion is similar.
5. The owner company’s subsurface teams must also do forecasting in
order to estimate how the pressures, temperatures, water cuts, and
gas-oil ratios are likely to change in the future.

7. Project governance systems and procedures should include the above

scenario as part of its Management of Change (MOC). The subject of
FEED parameter change does not appear in most of the Project Gate
System documents that the author (GUK) has seen.
Overarching Issues 79

company keeps track of the data given by the company in various

projects, as well as those of the contractor, and analyzes it periodi-
cally to see if there is any variance and, if at all, from where it has
come. The areas where the most variance occurs can be flagged for
further investigation and capture of better data. A central deposi-
tory will be required for handling the above, and it will be worth
the effort.

7.7 Value of Project Data

Earlier sections discussed about the importance of inlet data in a project,
whereas this section highlights the importance of project data or ‘as-built’
information that is available once the project is completed.
There are two instances in the life of a project where valuable information
is available: one at the end of FEED completion by the FEED contractor and
the other at the end of project completion at the EPC/LSTK contractor.
FEED documentation handover in owner companies is sometimes hazy,
because unless there is a central depository, who owns the FEED data is a
question mark. The authors have seen owner companies in the paper era
who were managing the mountains of paper documentation quite efficiently.
With the advent of digital storage and retrieval, it should have been easier,
but on the contrary, it has become difficult.
The key issues here are the following:

a. Who will own the data? Traditionally, the central engineering depart-
ments were in charge of the above. But with downsizing and resource
crunches, the owner companies are lax on FEED documentation. The
FEED documentation is usually with the FEED contractor and will be
handed over to the owner project teams when their work is over and
is kept somewhere (mostly in the records room or-library sections, if
at all they exist) with no ease of access and retrieval. The project pro-
ponent sometimes gets a copy.
b. Lack of systems and procedures about how to store data and its
retrieval mechanisms. Paper documentation is definitely not feasi-
ble. Owner companies need to spend time and effort to decide about
the software for a comprehensive document management system to
be used for the above. Its compatibility with the FEED documen-
tation must be checked and demonstrated. For example, facility
drawings will be in 3D software and they must be readable (if not
editable) with the retrieval software. The same is applicable to all
documentation. Query, search, and retrieval setup must be relevant
80 Front End Engineering Design of Oil and Gas Projects

to the context of the FEED. Of course, resources must be available or

outsourced. (For example, all the FEED cannot be in a single file. It
must be classified and coded separately so that the query can bring
up the relevant files).
c. FEED data become valuable in the next similar project or making modi-
fications in the facility. Granted that as-built data from the project are
more easily available, however, only the full FEED information will give
answers to why and how the facility components are designed that way.

The second set of information is from the EPC contractor, who, in order to
fulfill the contract requirements, prepares the ‘as-built’ data and hands over
the project information to the client. Again, truckloads of box files containing
the as-built documentation are definitely out. But digital as-built is seldom
checked for compatibility.
The sections a, b, and c noted above are applicable here also. The owner-
ship issue is better here, because the operating entity of the owner company
takes care of the operating and maintenance manuals.
Detailed, clear, and precise instruction must be included in the contract as
to how to prepare the as-built documentation and its delivery. (Stating ‘soft
copy’ or in a ‘certain format’ will not help).
The following cases are examples of problems faced with as-built
documentation:

• The ‘as-built’ is only a one-to-one digital copy of the old paper style
as built, because there is no clear instruction from the owner com-
pany on how to prepare the same.
• Submitted as-built documentation in CDs could not be opened.
• The entire drawings are in a single file!
• Drawings in individual files, but with drawing numbers only, no
titles, which makes search difficult.
• No standardization between projects and between other stakeholders.

A good, well-maintained digital document management system can save

owner companies’, time, effort, and money that they end up spending when
they embark on new projects or modification of existing facilities.

7.8 Lessons Learnt

The peculiar finding about project lessons learnt is that a simple internet
search will reveal wealth of literature on the subject, that too with reference
Overarching Issues 81

to oil and gas projects. But the authors’ experience is that in reality, very few
companies have lessons learnt data that is really useful.
We think the root of the problem is that the people involved tend to think
of lessons learnt in terms of paper and maximum in terms of spreadsheet.
The above thinking will only translate data into spreadsheets or certain
other limited applications. What is needed is to think in terms of knowledge
management and software that can capture the data into a true database that
contains the relevant information and has ease of retrievability. The above
should be part of the permanent overall project knowledge management
depository system of the company with access permissions and outside the
temporary project management organizations. Rather than trying to develop
such a system on their own, it will be worthwhile to bring in a knowledge
management specialist consultant to be embedded within the project teams
and develop correct and useful systems.
Project and engineering management must carefully define the terms and
discuss with the stakeholders regarding what constitutes lessons learned.
Lessons learnt is not a blame game, and should be finalized after meeting
or consultation with stakeholders. There is a wealth of literature available on
the subject. Again, third-party involvement may be required as stakeholders
tend to avoid reporting misses from their side.
 Part II

Case Studies and Lessons

8
Case Studies: What They Tell Us

The following chapters present case studies that illustrate how the gaps,
errors, and mismatches in the FEED impacted projects as they progressed.
As can be seen in retrospect, all of them were avoidable. The project identities
have been masked for confidentiality.
There is a serious deficiency in owner companies about collecting and
keeping such case studies. Secrecy prevails due to several reasons, the blame
game being the foremost. The authors’ humble opinion is that the owner
companies collect such case studies and build a database of the same so that
it can be used to avoid similar issues in the future. An organization-wide
attitudinal change will be required to minimize design errors.
There are databases of accidents available in several sectors including the
chemical and hydrocarbon industry, some of which are public and some
paid. Though many papers have been published on design errors, there are
no large-scale databases available on design errors in the process industry.
Academic research needs to pursue this aspect.
The shedding of engineering expertise from owner oil and gas compa-
nies is a common factor that stands out in all case studies. Owner compa-
nies must think of expertise as intellectual capital and national asset. The
overheads of keeping them on company payrolls are little compared to the
impact they can make in capital projects. The thought that we can save costs
as design and engineering is not our core business and can be outsourced is
a short-term sunrise-to-sunset view, which has spread in owner companies.
It has done enough damage. Both authors have experienced the ‘bewilder-
ment’ in owner companies when problems come up during FEED and later
in detailed engineering and construction. When the ball lands in the owners’
court, they find that they have no resources to provide any answers that are
in their interest.
The authors are not alone in the above findings. Several consultants and
researchers have arrived at the same conclusion. It merits serious thought
among senior management in oil and gas companies.

DOI: 10.1201/9781003317081-11 85
9
The Baywater OPCU Project –
A Risk Not Worth Taking

This is a case study of a project where the client and the contractor took on
certain risks, which ultimately resulted in a project that has stalled, with
the client and the contractor unable to resolve the issues that stalled the
project.
Project Overview:
Project Name – The Baywater OPCU Project
Client – The national hydrocarbon authority of a South Asian country
Contractor – International Marine Project Ventures, Singapore
Project Award Date – June 2015
Project Value – USD 150 Million
Current Project Status – Originally contracted for completion by June 2017,
currently stalled at around halfway to completion, with client and contractor
unable to reach an agreement for resolution.
Project Description: The National Hydrocarbon Authority (NHA) is the
government authority tasked with hydrocarbon energy exploration, produc-
tion, and distribution, in a South Asian country.
NHA has initiated redevelopment of an offshore gas field, which has been
in production for the last 5 years, and where some new reservoir capacity has
been recently identified.
7 wellheads are currently in production in this field, and the redevelop-
ment plan envisages installation of an additional 5 wellheads and a new gas
export pipeline leading to a new landfall location.
The drilling, wellhead installation, and the new subsea pipeline works are
in progress, and the NHA is looking at creating a new mobile offshore gas
processing and compression unit (OPCU), which will be the last link in the
gas production and export chain.
Based on Feasibility studies carried out by their inhouse engineering team,
the NHA has identified that one of their existing mobile offshore drilling
units, which is currently ‘mothballed’, can be converted to the OPCU as
required to complete their project.
The NHA had issued a tender for converting the offshore drilling unit to
the OPCU.


86 DOI: 10.1201/9781003317081-12
The Baywater OPCU Project – A Risk Not Worth Taking 87

Project Scope: Design and fabricate new topside process modules consist-
ing of the following:

• (PGC) Process Gas Compressor (2 trains × 1.8 MMSCMD each).

• GTG (Gas Turbine Generator) (2 trains × 3 MW each).
• Knock-out drum (3.6 MMSCMD & 8000 BLPD of liquid).
• Flare tips.
• Produced Water Conditioning System (2 hydrocyclones × 50% & 1
Degasser Unit × 100%).
• Chemical injection, N2 generator.
• Hydrochlorination, flare boom.
• Utilities.

Upgrade and refurbish the following existing systems/equipment:

• Jacking system.
• Legs.
• Helideck.
• Bilge pumps.
• Diesel purifier.
• Air compressors.
• Rescue boat.
• Demolition of existing equipment.
• Integration of new equipment at the fabrication yard.
• Marine transportation and installation.
• Offshore hook-up, pre-commissioning, and commissioning.

The Contract Award: The NHA awards an EPC contract for the conversion
project to International Marine Project Ventures (IMPV).
On a detailed review of the project scope, IMPV determines that it needs
to bring in a JV partner to plug certain competency gaps in IMPV’s current
operations. IMPV chooses ABC Shipyards (ABCS) as a JV partner, with the
specific scope of undertaking the upgrade and refurbishment, demolition,
marine transport, and installation scope.
The NHA agrees to the JV approach with the condition that IMPV shall be
identified as the prime contractor.
ABCS in turn engages a specialist engineering consultant, Marine
Engineering Services (MES), for design and engineering services related to
upgrade and refurbishment.
88 Front End Engineering Design of Oil and Gas Projects

The overall contract is valued at USD 150 million, with a 60%/40% scope
split between IMPV and ABCS.
The contractor’s pre-award checklist is given in Table 9.1.
One important conclusion that we can draw from this risk assessment is
that the contractor has assumed that the uncertainties with respect to the
condition of the existing systems and facilities, and the feasibility of their
adequate refurbishment for the new service, carry a low risk and can be
­easily managed.
However, when we look at the status of the project after 24 months into
construction, the cascading effects of delays in detailed engineering,
procurement, and fabrication can be seen as shown in Table 9.2.

TABLE 9.1
Pre-award Risk Assessment by Contractor
Sl. No. Potential Risk Identified Risk Rating Mitigation Actions
1 Extremely tight overall High 1) Advance engineering
schedule – engineering 2) Pre-bid tie-up with GTG and
and yard PGC vendor
2 Jacking System Adequacy Low Topside equipment selection to
requiring Modification of limit the weight
Jacking System
3 Jacking System Adequacy Low Cost for the pessimistic scenario
– ambiguous scope for
gearbox refurbishment
4 Lengthy flare boom and Medium NHA has agreed to consider the
increase in weight for flare staggered release of
and supporting weight hydrocarbons during emergency
shutdown to reduce flare boom
length
5 Refurbishment of legs Low Based on past experience, consider
(rack, chord, and tubulars) replacement of tubulars only
Advance engineering and
procure higher thickness
tubular
Replace all the braces in
underwater leg sections
6 Possibility of inadequate Low Dredging at yard
draft during the MOPU
redelivery
7 Stick-built approach High Augment material handling
alongside jetty for process capacities on a rental basis and
equipment deploy experts from MFF
Hazira
The Baywater OPCU Project – A Risk Not Worth Taking 89

TABLE 9.2
Project Status 24 Months After Award of Contract
Contribution to
Weight Factor Overall Progress
Description (%) Sch. % Act. %
1 Detailed engineering 3.5 100.00 74.88
2 Procurement 55.0 100.00 61.70
3 Demolition 2.0 100.00 100.00
4 Fabrication 21.5 100.00 30.36
5 Transportation 6.0 100.00 50.00
6 Jack-up 1.0 100.00 0.00
7 Hook-up, testing, and pre-comm. 10.0 100.00 0.00
8 Survey 1.0 100.00 40.00
OVERALL PROJECT PROGRESS 100.00 100.00 48.49
IMPV PROGRESS 100.00 100.00 70.60
ABCS PROGRESS 100.00 100.00 15.33

What Went Wrong: The key issue that stalled the project was that the
refurbishment of the platform jacking system, which is a critical component
of the final assembly, was not found to be technically feasible. The contrac-
tor’s original assumption was that this was feasible without a major cost
impact, but once the final topside design was completed, it became clear
that the existing system was fundamentally inadequate, and a completely
new system was required. The cost of a new system was much higher than
originally estimated and would lead to a substantial loss for the contractor.
Negotiations between the client and the contractor for a contract price revi-
sion have been deadlocked.

KEY TAKEAWAYS
1. In an EPC project where there are a significant number of
unknown factors, which can impact the schedule and cost of
the project, typically as is found in projects involving refur-
bishing or revamping an existing facility, the project owner
needs to carry out a thorough engineering study of the exist-
ing facilities to clearly identify their condition and limitations.
Passing on this responsibility to an EPC contractor is extremely
risky because the EPC contractor has already committed to a
fixed cost and a time schedule for the project, and their subse-
quent evaluation of the unknown factors could substantially
jeopardize their cost and time commitment.
90 Front End Engineering Design of Oil and Gas Projects

2. EPC contractors generally tend to assume a best-case scenario

when faced with the problem of dealing with unknown factors
at the pre-bid stage, because of the pressure to come up with a
competitive bid, and the lack of time and opportunity to carry
out a detailed evaluation of the unknown factors.

3. An early investment by the project owner in carrying out a

detailed engineering study of his existing facilities, prior to
putting out an EPC tender, could have resulted in a higher
initial investment for the project, but would have ensured
timely completion of the project and its subsequent operational
benefits.
10
When Pipe Thickness Went Wrong

Project overview: The project involved long-distance pipelines carrying

crude oil from one point to another. There were several pipelines with diam-
eters ranging from 8 to 24 inches. The pipelines were partly aboveground
and partly underground. The distances traversed by the pipelines varied
from 20 to 50 km. The underground portion was longer in all pipelines.
Name: Pipeline project ABC
Client (owner company): Major oil company (OWN1)
FEED & Project Management Contractor: International engineering com-
pany (ENG1)
Contractor: International EPC contractor (EPC1)
Project location: Asia
Project duration: 30 months
Project value: Between 700 million and 800 million USD
Summary of project scope and description: EPC contractor scope included
detailed engineering, procurement, installation, testing, commissioning,
and handover of several pipelines to the client. The pipeline diameter varied
from 8 inches to 24 inches. Pipelines traversed aboveground (minor portion)
and underground (major portion). Lengths varied from 20 to 50 km.
Bidding and contract award: The Invitation to Bid (ITB) package with
FEED technical documentation was prepared by an international engineer-
ing company (ENG1). ITB was sent to shortlisted EPC companies. Out of 4
bids received, L1 (the lowest) bid was from a well-known EPC contractor
(EPC1). Curiously, there was a considerable difference between the L1 bid
value and the next highest L2 bid (in the range of 4 million to 6 million USD).
After the usual rounds of bid clarifications, the bid was awarded to EPC1,
whose bid was accepted as technically suitable and the lowest.
What went wrong: Within the first 3 months of the contract award, the
contractor EPC1 came up with a formal request for using lower thicknesses
in most of the pipelines as compared to the pipeline thicknesses given in
the FEED documentation. The formal request was backed up with extensive
calculations of pipe thicknesses, which also were submitted to the owner
company.
The owner company’s engineering contractor ENG1 duly reviewed the
above calculations and found them correct. The above finding raised the fol-
lowing critical questions:

DOI: 10.1201/9781003317081-13 91
92 Front End Engineering Design of Oil and Gas Projects

2. About several contractual issues as to if the FEED thicknesses are

minimum and need to be complied with.

Apparently, if the EPC contractor is right, then the FEED thicknesses were
an overdesign and could be in error. And if the owner agrees to lower thick-
nesses, EPC1 will save a good amount of money. Can the savings be passed
on to the owner company, and if so to what extent? All the above become
issues when viewed from a contractual angle, since the bid, quotes, and the
award were based on higher thicknesses in the FEED.
Analysis: Due to the complex nature of the issue and criticality of resolv-
ing the same as early as possible, an independent Task Force was constituted
by the management of the owner company. The members of the Task Force
were from outside of the engineering contractor ENG1 and the project team
of the owner company. The time given to the Task Force was about 3 weeks.
The Task Force went through the FEED calculations, FEED thicknesses,
and compared the same with the calculations submitted by the contractor
EPC1. Connected clauses in the contract were also examined.
The findings of the Task Force are summarized as follows:

1. The calculations submitted by the contractor EPC1 were technically

correct.
2. The FEED thicknesses were an overdesign, resulting from taking
wrong temperatures of the earth for the underground portion of the
pipelines.
3. Contractually, there were inconsistencies in the terminology used.
In one instance, the thicknesses were stated as ‘preliminary’ and the
responsibility was on the contractor to recalculate and confirm the
thicknesses using various methods, whereas in another place, it is
noted as ‘minimum’.
4. The aspect of passing on the savings due to the efforts of the contrac-
tor to the owner company was not mentioned specifically in the con-
tract. The contract was stated in general terms regarding the need for
optimization by the contractor.

Following related pipeline thickness calculations can be safety skipped by

the reader. Those who are interested can go through the same to get a deeper
understanding of the issue.
Pipeline thickness calculations: An overview of the thickness calcula-
tions is given below without going into the finer details.
The forces in a pipeline under pressure are shown in Figure 10.1.
As can be seen, the pipelines are primarily under three forces. First is the
hoop stress, because it is circumferential and tends to break the pipeline in
the plane of the diameter; second is the axial stress since it will burst the
When Pipe Thickness Went Wrong 93

Axial stress Sa

Pipe wall thickness

Axial stress Sa

Pressure P

Hoop stress Sn

FIGURE 10.1
Forces in a pipeline under pressure.

pipeline along its length, that is, in the axis or longitudinal direction; and
third is the radial stress, which is significant only in thick-walled pipelines.
Transmission pipelines are considered thin-walled, and therefore, the radial
stress is neglected. Usually, the dominating stress is the hoop stress, when the
pipeline is not restrained, that is, not constrained by an outside mechanism.
On the contrary, when the pipeline is buried underground, it is restrained,
and several other forces come into effect. They are discussed below with ref-
erence to ASME B31.4 (Pipeline Transportation Systems for Liquids and
Slurries) and ASME B31.8 (Gas Transmission and Distribution Piping
Systems).
The formula given below is in the English (FPS) system based on ASME
31.8.

P×D
tmin = (10.1)
2×S×E× F ×T

tcalculated = tmin + CA (10.2)

where

P – internal pipe design pressure, psig.

D – nominal pipe outside diameter, inches.
t – nominal pipe wall thickness, inches.
S – SMYS of pipe material, psig.
E – seam joint factor, 1.0 seamless and submerged arc welded (SAW)
pipes.
F – design factor, usually 0.72 for liquid pipelines. For gas pipelines,
the range is from 0.72 to 0.40 in class 4 locations. Class locations for
gas pipelines depend on the population density in the vicinity of the
pipeline.
94 Front End Engineering Design of Oil and Gas Projects

T – temperature de-ration factor equal to 1.0 for temperatures below

250°F (121°C).
CA – corrosion allowance.

For buried and restrained pipelines, the t calculated thickness has to be cross-
checked with the allowable equivalent stress coming on the pipeline from

• Longitudinal stress experienced by the pipeline – combination of

effects of internal pressure (Poisson effect) and temperature.
• Bending stress.
• Axial stress – could be tensile or compressive.

Both ASME 31.8 for gas and ASME 31.4 for liquid pipelines require this check.
For the above, bending stress is usually negligible for straight length
installed underground. The bending stress could be high during installation
and is minimized by controlling the elastic bend of the pipeline. Here, it is
taken as zero for simplifying the calculations.
Generally, no axial stress either tensile or compressive is applied to the
pipeline externally. Therefore, it is also taken as zero here for simplifying the
calculations.
Equation 10.3 gives the longitudinal stress SL in mathematical terms.

SL = SP + ST + SX + SB (10.3)

where

SP – longitudinal stress due to internal pressure.

ST – longitudinal stress due to thermal expansion in restrained pipelines.
SX – axial stress, taken as zero here.
SB – bending stress, taken as zero.

Going further,

SP = 0.3 SH (10.4)

ST = E α (T1 − T2 ) (10.5)

where

SH – hoop stress calculated using the selected thickness, which will

be > tcalculated.
E – modulus of elasticity of steel.
When Pipe Thickness Went Wrong 95

α – coefficient of thermal expansion of steel.

T1 – installation, back-filled temperature (max or min).
T2 – maximum or Min operating temperature.

As per ASME codes, aboveground pipelines are unrestrained, and therefore,

for such sections, aboveground longitudinal stress need not be checked. But
equivalent stress due to internal pressure SP, as well as bending stress SB,
needs to be evaluated.
The limits of longitudinal stress established by the codes are given by the
two equations:

SL = SP + ST ≤ [Link] (10.6)

(S )
2 1/2
P − SL .SH + SH2 ≤ [Link] (10.7)

where

SMYS – Specified Minimum Yield Strength of the pipeline material.

Having gone through the above, let us see how the calculations were done in
the FEED technical documentation for the pipeline design.
The FEED team used the calculation methodology correctly; firstly, they
arrived at the thickness based on the hoop stress equation, added corrosion
allowance, and then selected a suitable pipe thickness higher than the above.
Secondly, they did the cross-checking based on the equivalent stress
method and evaluated all the terms in Equation 10.3 using the elaborate von
Mises method. The cross-checking results showed that the thickness selected
based on the first step did not satisfy the criteria as per Equations 10.6 and
10.7. Therefore, the thicknesses were increased to meet the criteria and a note
was added to state the above in the pipeline design basis document.
The error happened while taking the installation temperature for the
underground portion of the pipeline for use in Equation 10.5.
The owner company had a standard for climatological data, and the differ-
ent temperatures to be taken for various calculations were indicated in the
same. They are given below for illustration. The temperature values given
are not real. For example:

• Aboveground temperatures from summer and winter average dry

bulb temperatures:
47°C/7°C.
• Underground temperatures 1.22 m below ground level from summer
and winter:
35°C/17°C.
96 Front End Engineering Design of Oil and Gas Projects

Further, the pipeline design basis document stated the pipeline operating
temperatures as 50°C max and 15.6°C min.
The FEED team while taking the temperatures for calculating longitu-
dinal stress as per equation somehow used the temperature of 50°C and
15.6°C for T1 and T2 in Equation 10.5, instead of 35°C and 17°C.
The above error resulted in not meeting the criteria in Equations 10.6 and
10.7. The note in the FEED document clearly mentioned that the thicknesses
have been increased to meet the criteria in Equations 10.6 and 10.7.
The impact resulted in unnecessary higher pipeline thicknesses effectively
increasing the total pipeline tonnage by 20,000 tons!
Not to mention the contractual wrangling and project delays involved once
the contractor arrived at the correct thicknesses, which were lower!
Authors’ note: The baffling fact is that how the experienced FEED team
missed the above. The key points in the issue are as follows:

• An experienced pipeline design engineer should have noticed some-

thing was amiss when the equivalent stress calculations indicated
non-compliance to the criteria. Adjusting the thicknesses to meet the
criteria is an unusual design practice for conventional crude oil lines.
• The departmental design review and overall FEED documentation
review should have brought out the error, which points to the quality
of such reviews. ‘Check the box mentality’ of the review team mem-
bers may have contributed to the above. The review team members
may have been exhausted. There could be several factors.
• It took only 3 weeks for the Task Force to identify the design error,
and that too with team members who were not experts in pipeline
design. In fact, the young piping engineer in the Task Force was new
to the equivalent stress checking methods. This shows that whenever
there is a clear target for the team, and the right leadership, design
reviews can be very useful.

The annals of design companies are filled with such error stories!
The key takeaway is the need for independent review of all design doc-
umentation, at the discipline departmental level and overall FEED level.
Ensuring the quality of such reviews is not easy in a mega project, but well-
established techniques can help, which are given elsewhere in the book. Time
must be available for such reviews. The engineering management leadership
plays a key role in ensuring the quality of engineering deliverables.
11
When Compressor Selection Went Wrong

Project overview: The project involved replacing old reciprocating com-

pressors (total of 6 numbers in sets of 2 for 3 locations) with suitable new
machines. The machines were used to compress high molecular weight–
associated gases from near atmospheric pressure to about 7 barg (about 105
psig).
Name: Compressor replacement project (CRP)
Client (owner company): Major oil company (OWN2)
FEED & Project Management Contractor: International engineering com-
pany (ENG2)
Contractor: International EPC contractor (EPC2)
Project location: Middle East
Project duration: 24 months
Project value: About 100 million USD
Summary of project scope & description: EPC contractor scope included
detailed engineering, procurement, installation, testing, commissioning, and
handover of six compressor units with all accessories to the owner. The type
of compressor had been fixed in the FEED documents by the owner company
OWN2, as a wet-type screw compressor.
Bidding and contract award: The Invitation to Bid (ITB) package with
FEED technical documentation was prepared by an international engineer-
ing company (ENG2). There was a good response to the ITB from established
contractors.
After bid clarifications, the bid was awarded to EPC2, whose bid was
accepted as technically suitable and the lowest.
What went wrong: The project execution stage was completed without
major hiccups with only a slight delay. When the first compressor unit was
commissioned, there was the problem of frequent compressor shutdowns
due to lube oil filter choking. The lube filter system was duly cleaned out,
and the unit was started up again. But the problem persisted. The same
issue surfaced during commissioning of the remaining compressors in other
locations.
The contractor formally informed the owner about the problem and sug-
gested analyzing the material that choked the lube oil filter, since they sus-
pected the same to have originated from the gas coming from the owner’s
processing facilities.
Advanced chromatographic analysis was conducted on the chock material
samples, by the contractor and the owner. Analysis results from both sides

DOI: 10.1201/9781003317081-14 97
98 Front End Engineering Design of Oil and Gas Projects

TABLE 11.1
Gas Composition
Sl. No. Component Name Mole %
1 Nitrogen (N2) 4.37
2 Carbon dioxide (CO2) 1.34
3 Hydrogen sulfide (H2S) 0.20
4 Methane (CH4) 71.10
5 Ethane (C2H6) 5.30
6 Propane (C3H8) 5.60
7 n-Butane (nC4H10) 2.48
9 i-Butane (iC4H10) 1.41
10 n-Pentane 1.42
11 i-Pentane 1.90
12 Hexane (C6H14) 1.40
13 C7+ 3.48

indicated the presence of hydrocarbons in the chock material, particularly

higher molecular weight hydrocarbons from C12 onward, indicating the
presence of crude oil.
The above presented a mystery. The project remained unsuccessful till the
mystery was solved.
Analysis: The following were the data with respect to the feed gases:

1. The gases were coming from the crude oil storage tank, which was
the last step in the process of separation of crude oil, water, and gas.
From the storage tank, the crude was pumped out for export. The
tank was fixed cone roof tank.
2. Analysis of the gas itself did not reveal anything unusual. The typi-
cal gas composition looks like the one in Table 11.1.

The component composition does not remain steady throughout the year; it
varies depending on the weather conditions, generally +/−3 to 5%. The gas is
comparatively heavy with molecular weight in the range of 37–42.
The gas composition analysis above is on a ‘dry basis’. Water is not included.
To find out the water mole percent in the gas, the temperature and pressure
conditions of the gas must be simulated to know how much water the gas can
carry at those conditions.
Most importantly, the gas compositions given in the FEED and contract did
not mention any liquid content in the gas.
The investigation committee set up to handle the issue interviewed the
persons in the owner company who were involved in the data input to the
FEED. The engineering company who prepared the FEED was no longer in
the picture, and so only the records were available. The inputs from the per-
sonnel and the records did not show anything unusual, except for a recom-
mendation report from the FEED contractor on selection of the compressor.
When Compressor Selection Went Wrong 99

The document elaborated on the selection of the wet-type screw compres-

sor. Wet-type screw compressors have the rotating screw bathed in lubri-
cating oil, which is recovered downstream by a suitable lube oil filter and
recycled. The lube oils used are not proprietary. The selection was based on
the 0% to 100% turndown possible in the screw compressors and its insensi-
tivity to changes in the gas molecular weight. The other main contender was
‘dry-type’ screw compressor, but the same was ruled out since the evalua-
tors thought it has very finely machined parts/surfaces and requires costly
maintenance. Centrifugal compressors were not favored due to the lower
gas capacities required to handle and the machine’s sensitivity to molecular
weight changes.
The committee members noted the following in the report of the FEED
contractor:

• There could be a potential problem of the gas reacting with lube oil
at the higher temperatures of compression. The report recommended
that the contractor/compressor manufacturer confirm the suitability
of lube oil for the gas being handled in the compressor.
• The original recommendation report’s conclusions on selection of
the compressor type were vague and not firm about the selection.
It had lots of ‘ifs’ and ‘buts’ and left the final decision to the owner
company.
• The recommendation report was basically a desktop study; no actual
first-hand feedback was sought from end users.

The committee could not find any record of who finally took the decision to
go for the wet-type screw compressor!
In the subject project, the compatibility of the gas with the lube oil had
been duly checked by the contractor/compressor manufacturer as per stipu-
lations in the contract.
Nobody could explain the phenomenon of the chock material in the
lube oil.
The breakthrough came when one of the members of the committee had
a chat with an operator who was an old-timer in the existing reciprocating
compressor unit. He casually mentioned that they have been draining buck-
ets of crude oil from the suction scrubber upstream of the reciprocating com-
pressor, on a regular basis! Further, he noted that, the crude oil was getting
even into the compressor cylinder as evidenced by the thick black coating in
the valve plates of the compressors. He had seen it with his own eyes when
the compressor was opened for maintenance.
He showed the committee member the half-barrel drum kept for draining
the suction scrubber, which was full of crude oil! It was evident that the gas
contained crude oil.
Based on the records and physical evidence from the site, the committee
put together what could have gone wrong. The key points are as follows:
100 Front End Engineering Design of Oil and Gas Projects

1. There was carryover of crude oil from the cone roof storage tank into
the gas line. It was in the form of fine mist particles. On entering the
suction scrubber, larger particles settled in the scrubber vessel, while
the finer droplets went thru the mist eliminator in the suction scrub-
ber and ended up in the lube oil, where it coagulated into the gluey
material that chocked the filter.
2. The gas samples were taken from the main gas pipe using a small
branch line. It would not have been a representative sample. Secondly,
the analysis was done on dry gas. A better sampling technique would
have been using an isokinetic setup, which was time-consuming and
costly. Moreover, the carryover of crude droplets happens in a ran-
dom style, which cannot be predicted easily, making a representative
sample difficult.
3. While making the compressor selection and the report, the owner
company and the FEED contractor did not get any first-hand feed-
back on performance of wet gas compressors, specifically in hydro-
carbon gas service, from end users.
4. After some effort, the committee finally contacted another major oil
company, only to find out that they also faced similar problems with
the wet gas screw compressors and are somehow managing with
additional filters and an intensive maintenance regime.
5. Contractually, the owner could not take over the units as the guaran-
tee runs had failed.

It so happened that the compressor skid was assembled by a package vendor.

The compressor alone was from the machine manufacturer, and the other
components in the skid were designed by the EPC contractor and supplied
by various vendors. It was difficult to pinpoint the responsibility of how the
wrong compressor type was chosen. In summary, the compressor was not a
fit to the system.
The issue ballooned up into a contractual and legal wrangle between the
owner company and the EPC contractor.
The owner company (under the not-so-good advice of their contractual
and legal teams) took a position that the gas analysis itself, particularly the
C7+ component, implied that there were oil droplets in the incoming gas.
And that the EPC contractor should have taken the above into account while
designing the compressor skid. The technical teams were of the opinion that
with certain modifications, the units could be made to work.
The EPC contractor’s stand was that the owner’s specifications did not spe-
cifically mention any crude carryover or liquid droplets in the gas. What was
given was just the composition of the gas, in the gaseous state. The com-
position was presented in a usual data format, nothing unusual about it. If
the voluminous FEED technical documentation contained all detailed data
and information, why such important data on crude carryover as liquid mist
were not stated clearly rather than in an implied manner!
When Compressor Selection Went Wrong 101

The owner’s senior management considered the opinions of all sides. They
were inclined to go with the technical team’s recommendation but for the
thorny issue of sharing of the cost and accountability for project non-perfor-
mance and delays that either side was not willing to concede. The contractual
and legal aspects prevailed.
If one steps back and reviews the situation, actually both sides’ objectives
are the same, namely, that of completing the project and getting it up run-
ning. Unfortunately, the above perspective is lost when both sides try to
prove each other wrong contractually and legally. In fact, in the end, both
sides lost having spent a lot of time and money on litigation.
Analysis: The following factors are the key elements in what went
wrong:

1. The type of compressor wet crew selected for the service is ques-
tionable. The wet type would have worked if the gas did not con-
tain entrained liquid droplets (the liquid state of the micron-level
droplets is important). The owner and the then FEED (engineering)
contractor failed to understand the existing system properly and as a
result selected a compressor that was a common choice in the indus-
try, but for other services. As stated earlier, no first-hand end user
experience was sought directly. Dry-type screw compressor would
have worked in the situation.
2. The owner company’s review of the recommendation of the FEED
contractor was inadequate. First of all, when such studies are con-
tracted out, there must be a clear understanding and responsibility
for the FEED contractor on the deliverables and recommendations.
Such desktop studies on equipment selection should be always sup-
plemented with actual end user data.
A FEED done under a tight schedule and focused deliverables is
not a research project. Any uncertainties in the technical data or
specifications should be studied separately and carried out by the
right agencies. If required, pilot plant studies also have to be con-
ducted. Owner companies should not shy away from such studies,
and the time taken for the same.
It is better for a project to fail in a pilot plant stage rather than on a
full-scale project!
3. Further, conditional clauses in the EPC contract are more problem-
atic. For example, in the subject project, there was the clause that the
EPC contractor should verify the compatibility of the gas with the
lube oil in the wet screw compressor. But it did not state what to do
if the gas is not compatible with the lube oil!
For completeness of the study, the proposal by the technical team
for modification of the compressor unit is given below:
The function of inlet gas scrubbers upstream of the compressor
is to capture and take out any liquids in the gas. Conventional gas
102 Front End Engineering Design of Oil and Gas Projects

(a)
Gas
outlet

Mist eliminator

Inlet Liquid drain pipe

device

Feed inlet

Liquid
outlet

(b)
Gas inlet
Gas outlet
Mist eliminator

Inlet
device

[Link] to be sloped suitably

to the gas outlet side Liquid outlets
2. Nozzle connections to be
provided for flushing of the
mist eliminator

FIGURE 11.1
(a) Vertical inlet gas scrubber. (b) Horizontal inlet gas scrubber.

scrubbers can be vertical or horizontal. In the subject project, they

had gone for a vertical vessel with a half-pipe inlet device and
mesh time mist eliminator.

The technical team was of the opinion that given the fact of liquid carryover
from the storage tank, a horizontal scrubber would have done the job better.
The horizontal vessel has a better design, inlet device (preferably, tangential
entry), and mist eliminator system consisting of vane- and mesh-type decks.
The horizontal vessel can be sloped slightly for better liquid collection (see
Figures 11.1a and b).
When Compressor Selection Went Wrong 103

Gas outlet to
compressor

Highest liquid level

(theoretical)
Free space for liquid
droplets to settle

High-high liquid level –

shut down point

Normal liquid level

Liquid Liquid level control band
inlet
Crude oil outlet

Effluent water outlet

Fixed roof tank – critical liquid levels

(for illustration only)

FIGURE 11.2
Storage tank liquid levels.

The technical team with the help of the concerned operation personnel
studied the entire system in detail. They found out that the high-high level
in the storage tank is really high. The freeboard provided above the high-
high level is not as per industry practice and not enough. The freeboard in
this particular case should be higher considering the bubbling and agitated
level inside the tank. This will be quite violent if some high gas wells get
connected. The above situation is a recipe for carryover and should be rec-
ognized as such. Lowering the high-high level should help (see Figure 11.2).

KEY TAKEAWAYS
The above case study illustrates the importance of inlet FEED data and
that it should not be treated lightly. Sufficient attention should be given
to the same. The operations team can decide which data to be given,
but a review by design personnel on the data will be helpful. Also, it is
better to get user experience on equipment that looks suspicious for a
particular service. Further, FEED should not have gray areas and con-
ditional clauses.
104 Front End Engineering Design of Oil and Gas Projects

Technical solutions exist for most of the engineering problems. But

unfortunately, both sides often end up spending time and money blam-
ing each other. Maybe a third-party specialist negotiator would have
helped. If it is possible, the money for modifications can be pooled and
kept in a suspense account. The expense for modifications can be met
from the above pool. Once the project is completed and the facilities
are up and running, the expended amount can be suitably divided and
settled between the parties. All parties will be more amicable and pre-
pared to negotiate once the project is a success. In the end, the expenses
for the modifications will be less than the amount spend on litigation.
12
Iron Sulfide and Project Failure

Project overview: The following pages describe a project that failed to achieve
its objectives due to unforeseen Iron Sulfide precipitation on the equipment.
The importance of FEED composition is highlighted here.
Name: Effluent Treatment Project PQR
Client (owner company): Major oil company OWN5
FEED & Project Management Contractor: International engineering com-
pany (ENG5)
Contractor: International EPC contractor (EPC5)
Project location: Asia
Project duration: Varies from 24 to 30 months
Project value: About 500 million USD
Summary of project scope and description: EPC contractor scope included
detailed engineering, procurement, installation, testing, commissioning,
and handover of facilities to the owner. The project scope was to process a
large volume of separated effluent water coming out from various oil and gas
processing facilities.
Bidding and contract award: The Invitation to Bid (ITB) package with
FEED technical documentation was prepared by an international engineer-
ing company (ENG5). There was a good response from international EPC
contractors.
After several rounds of bid clarifications, the bid was awarded to EPC con-
tractor EPC5, whose bid is accepted as technically suitable and the lowest.
What went wrong: The project was completed with minor delays. When
the EPC contractor commenced commissioning, it was hampered after a few
days due to choking of the media (Nutshell type) filter. On dismantling of
the filter, it was found that the media was choked with a black precipitate,
which was found to be iron sulfide later. The media was cleaned and put
back. The thinking was that it may have precipitated due to chemical injec-
tions upstream of the filter. The chemical injection skids’ dosage rates were
adjusted, and the plant started up again.
However the problem persisted. Because of the large throughput involved,
the quantity of the iron sulfide precipitation was also high, necessitating
frequent shutdowns and cleaning of the media filters. This was happening
despite the provision for a standby filter.
After several trials, the contractor recognized the situation as a major
problem with inlet streams and formally wrote to the company about their
inability to commission the plant. They squarely placed the problem on the

DOI: 10.1201/9781003317081-15 105

106 Front End Engineering Design of Oil and Gas Projects

Iron sulfide
several processing centers

precipitation here

To injection pumps
Effluent water from

Storage Induced gas Media filter Storage tank

tank with floatation (walnut/ for injection
oil skimmer units pecan nut) water

Recovered oil Recovered oil Backwash liquid

FIGURE 12.1
Effluent water treatment schematic.

inlet feed streams in front of the owner company and therefore requested the
owner to handle the same.
Just to recap, the effluent water from the oil/gas/water separators, desalt-
ers, and storage tanks undergoes a series of processing steps as shown in
Figure 12.1. The processing steps’ main objective is to remove the oil and sus-
pended solid particulate matter in the effluent water to the required specifi-
cations suitable for injection back into reservoirs for pressure maintenance or
disposal. The processing steps involve a series of storage tanks and special-
ized vendor–designed equipment. During the processing steps, the effluent
water quality improves, and the concentration of oil content and particulates
decreases to target values, typically in the range of 20–30 parts per million
(ppm) for oil and 95% removal of solids of 5 micron (1 micron = 10−6 m).
The project’s large throughput could not be achieved due to the above
issues. Over a period of running the plant, the contractor reduced the flow to
about 60% of the original design, and managed the nutshell filter’s backwash
and cleaning cycles to keep the plant running. Guarantee runs were out of
question.
Both the contractor and the owner engaged the services of separate special-
ized chemical companies to study the problem in detail and provide recom-
mendations. It was a costly business involving 3 to 4 months’ time including
sample collections, site surveys, testing the samples, mixing studies of the
effluent water from different fields in laboratories.
The reports and recommendations came eventually. The reports high-
lighted the following:

2. Iron sulfide formation mechanism and chemistry are known. Iron

sulfide in the form of FeS2 generally precipitates out from the effluent
water in two situations:
Iron Sulfide and Project Failure 107

a. When water containing dissolved hydrogen sulfide comes into

contact with equipment fabricated from carbon steel or iron
materials.
b. When mixing water containing iron cations (Fe2) with another
water containing hydrogen sulfide.
3. The first scenario was ruled out in the subject project. The second
scenario could be causing the precipitation, though not in a simple
manner on mixing alone, but through several complex mechanisms
including the shearing of the oil droplets and agitation in the induced
gas floatation units.
4. The temporary solution suggested was a modification of the existing
chemical injection regime and the addition of a ferric sulfide dis-
solver chemical. It so happens that the ferric sulfide dissolver chemi-
cal is costly and would be a significant addition to the operating cost.

The above explanation is in layman’s terms without going into details given
in the voluminous technical reports produced by the consulting chemical
companies.
With no other choice, the chemical injection regime was modified, and fer-
ric sulfide dissolver chemical skids were added. Still, the capacity could not
come up to the design values.

KEY TAKEAWAYS
It is ironic that, in retrospect, the company spent time and money on
studying precisely what it did not do before or during the FEED. It
could be that the project was rushed through conceptual and FEED
stages, even though certain personnel may have wanted the special-
ized studies to be done. Using the typical jargon of ‘fast tracking’ the
FEED will not help. In fact, pressurizing the FEED and shortening
the FEED time is a fatal error an owner company can make in major
projects. A quality FEED requires time – like most of the things in
the world.
When the owner company’s engineering staff itself is small, they
depend on outsourced resources, who themselves may be totally
unaware of the problems of oil field effluent water processing. Such
knowledge could be available inside the owner company, but to utilize
it requires very effective stakeholder management on the part of the
project management team.
13
Provisions for Future and Associated Pitfalls

Project overview: The project was installation of a second train of effluent

water processing facility adjacent to the existing first train. The owner com-
pany had provided adequate space for the new second train and also had
made provisions in certain common facilities anticipating the new train at a
later date. The project included detailed engineering, procurement, construc-
tion, and installation of equipment and associated utilities for an effluent
water processing plant (second train).
Name: Effluent Water Treatment Project DSF
Client (owner company): Major oil company OWN6
FEED & Project Management Contractor: International engineering com-
pany (ENG6)
Contractor: International EPC contractor (EPC6)
Project location: Asia
Project duration: Varies from 30 to 36 months
Project value: About 500 million USD
Summary of project scope & description: EPC contractor scope included
detailed engineering, procurement, installation, testing, commissioning,
and handover of facilities to the owner. The project scope was to process a
large volume of separated effluent water coming out from various oil and
gas processing facilities. The scope specifically requested the contractor to
utilize the space already provided in the existing main pipe rack in the first
train to lay a large 24-inch diameter pipe, after checking the adequacy of the
structural support and foundation design.
Bidding and contract award: The Invitation to Bid (ITB) package with
FEED technical documentation was prepared by an international engineer-
ing company (ENG6). There was a good response from international EPC
contractors.
After several rounds of bid clarifications, the bid was awarded to EPC con-
tractor EPC6, whose bid is accepted as technically suitable and the lowest.
What went wrong: The project was going on smoothly when it hit a hur-
dle. The contractor did the checking after obtaining the design of the exist-
ing structural supports and foundations, which itself took some time. On
completing the check in the civil engineering structural design software, the
result came out stating that the existing pipe supports are not adequate to
take the load of the new 24-inch pipe that is going to carry the effluent water.
The space was adequate, though. A point worth noting is that the old-design


108 DOI: 10.1201/9781003317081-16
Provisions for Future and Associated Pitfalls 109

documentation for the first train did not contain any detail as to how and
where the future provisions were given.
The suggestions from the contractor called for providing additional struc-
tural members throughout the entire length of the pipe rack, which was a
long distance. Naturally, it involved additional cost and time from the con-
tractual point of view, since the contract was not clear about what the con-
tractor should do in case the adequacy verification came out the wrong way!
The project was stuck, and to resolve the issue, the owner company
appointed a third party, a structural design expert to verify the contractor’s
calculations.
The structural design expert reviewed the contractor’s calculations inde-
pendently. They recommended that not only the structure needs to be
strengthened, but the foundations also need strengthening!
The project was delayed due the contractual issues and the need to nego-
tiate with the contractor to finalize the additional work involved. The cost
of the additional work was not that much, but from a project point of view,
a high-value project got delayed due to lack of diligence on the part of the
designer of the first train.

KEY TAKEAWAYS
Provisions for future hardware and software can be made in a proj-
ect, but the owner company needs to be extra careful while doing so.
Certain importance points from the author (GUK) experience are noted
as follows:

1. First of all, when such a design adequacy check is included in

the scope of another EPC contractor, the FEED team needs to
do a check by themselves first and take care to include the addi-
tional requirements. The EPC contractor check should be only
to ensure fulfillment of the EPC contractor’s responsibilities.
2. The FEED team while including design adequacy checks by
the bidder/contractor in the ITB scope should ensure that the
existing design documentation is available. Because the new
facilities will be installed after several years, the accessibil-
ity of the ‘as-built’ documentation will be a question mark in
most owner companies. To retrieve the old-design documenta-
tion after many years is not an easy task in many companies.
Therefore, whenever clauses are put in the ITB for contractor
verification of old designs, it presents a gray area. The owner
and the FEED contractor need to be extra vigilant on such
clauses.
110 Front End Engineering Design of Oil and Gas Projects

3. It is suggested that in such cases where the company expects

future facilities to come, a document titled ‘Design Basis for
Future Provisions’ be prepared. The above document shall
include the reasons and the objectives for providing provisions
for future, as well as how it has been provided along with the
list of documents where it is covered. With respect to software,
the issue becomes more complicated due to version changes
and compatibility issues. The author has seen facility DCS
software being upgraded in one project, only to be dismantled
and replaced with new software due to successive changes,
additions, and modifications due to the lack of foresight and
planning. The document mentioned above will be a big help
when the company looks at the options for a second train 8 to
10 years from the construction of the first train.
14
Heat Exchanger Selection and
a Project Almost Gone Wrong

Project overview: The project scope consisted of adding new desalter and
dehydrating trains in several oil processing centers. All trains were identical.
The project included detailed engineering, procurement, construction, and
installation of equipment and associated utilities. The outlet crude oil had to
meet stringent quality with respect to salt and water content.
Name: Capacity Expansion Project ABC
Client (Owner company): Major oil company OWN7
FEED & Project Management Contractor: Inhouse and International
engineering company (ENG7)
Contractor: International EPC contractor (EPC7)
Project location: Middle East
Project duration: Varies from 24 to 30 months
Project value: About 80 to 100 million USD
Summary of project scope & description: EPC contractor scope included
detailed engineering, procurement, installation, testing, commissioning,
and handover of desalter and dehydration trains to the owner. The project
aimed to install an identical desalter and a dehydration train in several oil
processing centers. Since the design was identical, any error in design had an
impact on all the trains.
Bidding and contract award: The Invitation to Bid (ITB) package with
FEED technical documentation was prepared by an international engineer-
ing company (ENG7).
After several rounds of bid clarifications, the bid was awarded to EPC con-
tractor EPC7, whose bid is accepted as technically suitable and the lowest.
What almost went wrong: A typical desalter and dehydration train had
several equipment types connected in series as shown in Figure 14.1. The heat
input in the bath-type heater is optimized by transferring heat to cold inlet
crude stream from hot outlet crude stream, thereby heating the cold crude
prior to entry into the heater. The above heat exchange reduced the quantity
of fuel gas required in the bath-type heater for heating up the crude oil.
Since the project was a major expansion of the facilities, there was a commit-
tee of experts to finalize the project scope and its key technical parameters.
The committee had members from stakeholders from within the company, as
well as external design consultants.

DOI: 10.1201/9781003317081-17 111

112 Front End Engineering Design of Oil and Gas Projects

Hot crude oil stream

Cold crude oil stream

Wet crude inlet Desalter feed Crude/ crude Crude heater Desalter vessel Desalter vessel
pumps heat exchanger (bath type) No 1 No 2

Fuel gas
Wash water
addition
Dry crude
Desalted & storage tank
dehydratedcrude
Effluent water to
treatment facility

FIGURE 14.1
Schematic of the desalter train.

The committee finalized the Statement of Requirements (SOR) after several

rounds of consultations with stakeholders, and the same was forwarded to
the inhouse design and engineering unit of the company for preparation of
the FEED.
The design started with the process simulation and preparation of pro-
cess flow diagrams (PFDs). Since the process involved only liquid streams,
the simulations were generally straightforward. Moreover, all the equipment
types were also specified by the expert committee.
It so happened that the process simulation showed non-convergence of
solution for one equipment, namely, the crude/crude heat exchanger, which
was specified as shell & tube type. The error diagnostics of the simulation
program noted ‘temperature cross’ as the cause for non-convergence.
The process design engineers could not really understand the situation
initially. After doing some research, they understood the phenomenon as
shown in highly simplified Figures 14.2a and b.
Without going into the heat exchanger design details, in summary, it
makes sense that the outlet temperature of the heated cold stream cannot go
above that of the outlet temperature of the cooled hot stream. Temperature
cross means that the above principle has been violated and it is not physically
possible to achieve the heat transfer required in one shell & tube exchanger.
Thus, when the diagnostic said ‘temperature cross’, it meant that the speci-
fied one-number shell & tube exchanger cannot do the job!
There is one more term associated with the shell & tube exchanger design
with counter-current hot and cold stream arrangement called ‘temperature
approach’. The temperature approach is the difference in the end point tem-
peratures in an exchanger. In other words, it is a measure of how near the
heated cold stream can approach the inlet hot stream as shown in Figure
14.2a. In fact, in shell & tube heat exchanger, for one unit, the temperature
approach can be in the range of 10–20°C. As the temperature approach values
come down, the feasibility of a single shell & tube achieving the required
temperatures becomes doubtful.
Heat Exchanger Selection and a Project Almost Gone Wrong 113

(a)
T1 – hot stream inlet / T2 – hot stream outlet
t1 – cold stream inlet / t2 – cold stream outlet

Hot stream
inlet
T1
Hot stream
Temperature
outlet
approach
T2
t2 < T2 always
t2 Cold
stream
outlet

Cold t1
stream
inlet

(b)
T1 – hot stream inlet / T2 – hot stream outlet
t1 – cold stream inlet/ t2 – cold stream outlet

Hot stream
inlet
T1

Hot stream
t2 outlet

Temperature
t2 > T2 Cold cross
stream T2
outlet
t1
Cold
stream
inlet

FIGURE 14.2
(a) Simplified diagram – normal temperature profile in a counter-current shell & tube heat
exchanger. (b) Temperature profile with temperature cross.

The design engineers in the inhouse design unit did a detailed heat
exchanger design. The results showed that:
114 Front End Engineering Design of Oil and Gas Projects

duty is simply not possible with one-number shell & tube exchanger.
Additional numbers (at least 3 units in series) have to be provided to
cater for the situation, which will have an impact across the entire
design of the train.
2. The impact will be firstly on the cost of the equipment itself. Secondly,
the pumping pressure required will go up necessitating an upward
revision of the pumping head, horsepower, and motor rating. The
shut-off head of the pump will call for Class 300 pipe fittings. The
equipment layout also will be affected.
3. The reason for the unsuitability of shell & tube at that point, is
that the temperature approach is too low for that type of equip-
ment. Shell & tube-type heat exchanger needs higher temperature
approaches.
4. The optimum equipment for the particular duty of cold crude/
hot crude exchanger is the plate heat exchanger, because it can
pack more heat transfer area and can work with low-temperature
approaches.
5. The team requested vendor opinions and recommendations also.
They all came back and said that the plate type is the optimum type
suited for the duty.

With the above background, the design unit consulted the stakeholders on
the issue.
Because of the passage of time between the recommendation and proj-
ect implementation, the original expert committee or its members were not
available. They had retired or left the services of the company.
It was understood that the recommendation on a shell & tube heat
exchanger was made in view of the difficulty to do maintenance on the exist-
ing plate heat exchangers because of frequent Teflon gasket leakage.
There was no option but to go for the plate heat exchanger. Certain
additional time was given to the design unit to revise and complete the
FEED and the ITB. The time and effort by the design unit had its effect. It
saved the project. If the design error was not detected, during the bidding
process some of the EPC contractors may have found this out and chal-
lenged the design, probably resulting in cancellation of the bid, with dire
consequences.
If it was not detected during the bidding, the consequences would have
been worse and difficult to handle contractually, since the EPC contractor
would have requested for a massive change order.
It was found that the frequent gasket leakage in existing plate heat exchang-
ers of the owner company, was due to incorrect assembly of the gasket, the
plate and the frame!. The original equipment manufacturer (OEM), was glad
to train the owners maintenance personnel for the above work.
Heat Exchanger Selection and a Project Almost Gone Wrong 115

KEY TAKEAWAYS
A conceptual process design is a key element that is often overlooked
in the early stages of the project. It requires a certain way of thinking
and willingness to explore alternatives in design solutions. Equipment
type and sizes have an immediate impact on the equipment layout of
the facility and cascading impacts on other disciplines. The engineer-
ing manager’s role in the above aspects is crucial.
The importance of setting up and running process simulation mod-
els at the earliest opportunity in a project is emphasized. Original
Equipment Manufacturers (OEMs) must be consulted when choices of
equipment look suspicious. Changes to existing established systems
should be studied in depth before modifications are brought in.
15
Too Many Unknowns – FEED
Gone Wrong and Its Impacts

Project overview: This case study is based on an international offshore EPC

project executed for a project in South-East Asia. The project is unique in
many aspects, mainly because of the entities involved and the uncertainties
under which the project was tendered out. The terminology used here is dif-
ferent from the other case studies.
The three primary parties involved in this project are as follows:

1. A South Asian oil and gas exploration and production company (the
owner or client).
2. A South-East Asian country who has granted concession to the
owner/client for gas exploration in their territorial waters (the part-
ner country).
3. A South-East Asian EPC contractor who was awarded the contract
for the project (the contractor).

Name: Wellhead platforms WHP1, WHP2, and WHP3, and connected

pipelines.
FEED: The client provided FEED in the ITB, which formed the technical
basis of the contractor’s bid and subsequently served as a technical basis of
the EPC contract.
The key issues that dominated the proposal stage are stated as follows:

1. The bid mandated performance of FEED Verification and Endorsement.

2. The FEED containing Design Dossier included various high-end engi-
neering analyses such as Spectral Fatigue Analysis, Transportation
Fatigue Analysis, and Floatation & Upending Analysis, and other
stringent technical specifications.
3. The high-end engineering analysis required highly competent engi-
neers with relevant experience, specialized software, and adequate
time, which were constraints.

Project location: South-East Asia

Project duration: 14 months
Project value: Lump sum 325 million USD


116 DOI: 10.1201/9781003317081-18
Too Many Unknowns – FEED Gone Wrong and Its Impacts 117

WHP 2

WHP 1
18 inch intra
pipeline 10 km

Interconnecting
WHP 3 bridge 100 m Onshore

28 inch export
pipeline 230 km

18 inch intra
pipeline 11 km Central processing platform
Water depth 135-158 m

FIGURE 15.1
Project scope: WHP and pipelines.

Summary of project scope & description: The project scope consisted of

three offshore wellhead platforms (WHP1, WHP2, and WHP3) and pipe-
lines connecting them to a Central Processing Platform (being installed by
another contractor). A part of the gas production was to be taken off for
domestic use in the partner country, and the remaining gas was for export
by the client.
The scope of work included detailed engineering, procurement, supply,
construction, fabrication, transportation, installation, offshore hook-up, pre-
commissioning, and commissioning of three wellhead platforms and the
connecting pipelines.
The primary steel for structures and coated/lined pipes for pipelines were
supplied by the client as a free-issue material.
The scope is visualized in Figure 15.1. Dotted lines are not in the scope of
the subject project.
Unique Features of the Project: Several aspects of this project were unique
with many firsts for all the three principal participants:

1. The first offshore project in this area of the sea.

2. Extremely high water depth of 158 meters, deepest so far for the cli-
ent and the contractor.
3. Single-piece piles of length up to 144 meters.
4. Installation of long slender jacket by the launch method and long
pile installation by the pile upending method.
5. Rare Intensity Earthquake Analysis for a return period of 2500 years.
118 Front End Engineering Design of Oil and Gas Projects

Key Commodity Quantities

Component Quantity (Steel) in Tons

WHP1 WHP2 WHP3

Topside 1225 1450 1450
Jacket 6925 8100 7100
Skirt piles 4225 2800 3850

In addition to the above, the scope included two intra-field sealines con-
necting WHP2 and WHP3 platforms to the process platform.
Bidding and contract award: The EPC contract for the project was awarded
in May 2012, with the time schedule for handover of the plant to the client of
14 months from the contract award. The lump sum contract price was USD
325 million.
What went wrong: From the outset, the project faced a large number of
implementation challenges starting from the engineering stage, through pro-
curement and fabrication, right up to the installation stage. A summary of
the challenges faced is the following:

1. A large number of very specialized structural and safety engineering

analysis mandated in the contract required the contractor to mobi-
lize multiple specialist agencies. The results of such analysis resulted
in major changes to the original structural design considered by the
contractor at the proposal stage, with a considerable impact on proj-
ect cost and schedule.
2. Many vendors around whose equipment the FEED was structured
abstained from participating during project execution, because
the partner country came under a trade embargo from US and
European countries. The search for alternate vendors, the process
of getting the client approval for new vendors, and the platform
layout changes resulting from the changes in equipment design
put huge pressure on cost and schedule.
3. The selection and finalization of marine assets such as transpor-
tation barges and installation barges ran into big headwinds due
to the limited availability of such assets and simultaneous imple-
mentation of a large number of offshore projects all around the
world. Here again, the result was high pressure on the cost and
schedule.
4. At the installation stage, it was found that the piling strategy was
not working due to an incorrect soil analysis report, which was
included in the FEED. This error was discovered only when initial
piling attempts hit an unforeseen hard stratum, resulting in pile
refusal. Root cause analysis, alternate piling design, and sourcing of
Too Many Unknowns – FEED Gone Wrong and Its Impacts 119

additional equipment and resources, all resulted in additional costs

and time. At this stage, time delay was a huge cost due to marine
asset deployment schedule extension, resulting in large penalties.

Contractual Mitigation Measures by the Contractor: The contractor’s proj-

ect control team had been proactively keeping track of any event, incident, or
condition that led to changes in terms of escalation of activity duration and
costs to the original plan. To deliver a focused approach to Change manage-
ment, workshops were arranged for engineering and fabrication teams to
make them aware and sensitize them to variations occurring and need to
be vigilant in the identification of changes. The workshops facilitated open
discussion between teams to identify additional change orders and record it
in a Change register.
Apart from contracts team, members from various disciplines took addi-
tional responsibility for providing discipline-specific leads and supported
the contracts team in formulation and timely submission of change orders to
clients. All the notifications of the change orders were issued within 10 days
of the incidence, and the Change Request was compiled and submitted to the
client within the stipulated period of 15 days.
The end result of this diligent approach was that before the installation
phase was completed, the contractor had progressively placed before the
client multiple change orders totaling USD 60 million in cost and about
30 days for an extension of the time schedule.
Negotiation and Settlement of Claims: The final negotiation between
the client and the contractor was scheduled when the fabrication of WHP1
was close to completion and the sail away date of the WHP1 deck was fast-
approaching. There were substantial disagreements on the validity of cer-
tain change orders and the extension of time (EOT) claim already submitted.
After protracted discussions with the client, the contractor made strategic
moves to persuade the client to redefine the terms of the contract to address
all pending claims and linked it to sail away of the WHP1 deck as per an
accelerated schedule.
The client and the contractor finally reached an agreement with USD 38
million in additional costs and a 25-day extension to the project completion
schedule.
The Project Completion Status: The project was completed within the
extended project schedule, but the contractor suffered a cost overrun of USD
47 million (USD 35 million loss of profit + USD 12 million net loss over the
enhanced contract price). The contractor decided to accept this loss as there
were some errors on their part in the proposal stage engineering and estima-
tion, primarily associated with the marine asset mobilization and platform
fabrication subcontracts.
120 Front End Engineering Design of Oil and Gas Projects

KEY TAKEAWAYS
1. The FEED for offshore projects must be specific and conclu-
sive with respect to all issues that can substantially impact the
cost or implementation schedule of the project. Typically, these
should include all specialized structural and safety studies,
and soil analysis for the installation location. No contractor
would be able to carry out these activities during the pre-bid
period due to time and resource constraints.
2. The FEED should not be overly reliant on equipment or pack-
ages of specific vendors, because the availability of such ven-
dors at the project implementation stage can be uncertain due
to a full workload, a closure of business, or political issues
between countries. Getting alternate vendors onboard requires
substantial time for contractors and clients and could signifi-
cantly affect design aspects such as layout and foundation
loading.
3. Political issues like a trade embargo impacting the availability
of suppliers and subcontractors to support a project in a coun-
try/region are an issue in ‘no man’s land’ and need a negoti-
ated resolution between contractor and client.
4. For offshore projects, a key aspect is the availability and cost of
marine assets, both of which fluctuate wildly depending on the
number of offshore projects under implementation at the same
time around the world. Attractive costs at the bidding stage
could turn prohibitive by the time the implementation is taken
up. Long-term relationships and a good overview of the global
project scenario are essential to ensure reasonable compliance
between estimation and implementation.
16
When FEED Is Uncertain,
Contracting Strategy Can Help

Without diminishing the importance and value of a comprehensive and accu-

rate FEED, we need to recognize that there would be instances when generating
such a FEED becomes very difficult for the owner. Such projects by themselves
could be very critical for the owner, and rather than abandoning them due to the
difficulty in producing a reliable FEED, a way must be found to implement such
a project with a minimum risk to the owner, as well as the project implementing
agency. There are several examples worldwide of how such projects are success-
fully implemented, and given below is a case study of one such project.
Project Overview: A national oil company operating in Asia has operating
assets established over a period from mid-1950 to late 1960. The production
from these assets is critical not just for the company, but also for the country,
whose economy is heavily dependent on this production. These assets have
undergone running repairs and periodic modifications through their operat-
ing life. The assets are spread across the country as discrete processing units,
and this particular project deals with the following types of units:

1. Oil gathering units, which receive crude oil from oil wells located
nearby, process the crude oil to remove water and associated gas,
and store and export the treated crude oil to an export terminal. The
associated gas is compressed and sent to gas processing stations for
cleaning, condensate recovery, and finally exportation to power gen-
eration plants in the country. The recovered water is sent to water
injection facilities, which inject the water back into the oil wells.

Over the years, the owner’s internal safety audits, as well as the audits car-
ried out by their insurers, had identified some very critical areas of safety
risk, and at a point in time, it was deemed imperative that these safety risks
have to be mitigated. The critical safety risks were as follows:

1. The operating units were very old and had been subject to repairs
and modifications carried out without proper documentation or
records. The result was that there was no engineering documentation

DOI: 10.1201/9781003317081-19 121

122 Front End Engineering Design of Oil and Gas Projects

available with the owner as to the process flows, control systems,

electrical power distribution systems, and the overall unit layout.

Project location: Asia

Project duration: 24 to 36 month phased completion
Project value: About 2 billion USD
Summary of project scope and description: The owner decides to go
ahead with a mitigation project and ropes in a project management con-
tractor (PMC) to assist with formulating a project scope and specification
documents.
The scope included certain new equipment/systems to improve the opera-
tional efficiency, and combined with the basic safety mitigation measures,
the overall project scope was as follows:

1. New desalters and three-phase separators at the oil gathering units.

2. New condensate recovery compressor systems in the oil gathering
units.
3. New process control systems in both the oil gathering and gas pro-
cessing units.
4. New utility systems for instrument air, nitrogen, and electric power
receiving and distribution to cater to the added load of the new
equipment/systems.
5. Relocation of all underground piping and cabling to new aboveg-
round pipe/cable racks.

For items 1 to 4 above, the owner’s engineering team had already put together
a FEED.
Project Contracting Strategy: The owner and the PMC reviewed the
total project scope and the FEED. They concluded that a clear and definitive
FEED is available for the entire scope barring one area, which is the relo-
cation of all underground piping and cabling to new aboveground pipe/
cable racks, using new pipes and cables. This is a gray area because there is
no existing documentation available as to the number of pipes and cables,
which are currently buried underground, and also, there is no clarity pos-
sible on the route of the new aboveground pipe/cable racks, because they
When FEED Is Uncertain, Contracting Strategy Can Help 123

have to be routed to avoid interference with the existing buried pipes and
cables.
The owner and PMC decide on a contracting strategy, which will provide
an optimum value for the owner, as well as provide a level playing field for
an EPC contractor to make a fair assessment of his costs and risks. The key
points of the overall contracting strategy are as follows:

1. A fixed lump sum contract for a detailed survey of the various units
to be modified to create an ‘as is’ documentation for process flow,
instrument and control systems, electrical power receiving and dis-
tribution systems, and existing equipment layout. This survey was
also intended to identify location of all the new equipment, and the
routing of new pipe/cable racks without interference with the exist-
ing underground pipes and cables.
2. A fixed lump sum contract for the new equipment and systems to be
installed, which can be clearly defined with scope and specifications.
3. A re-measurable unit rate contract for building the new aboveground
pipe/cable racks and laying the new pipes and cables thereon.
4. The entire project construction is to be done in a ‘brownfield’ envi-
ronment, which means that all the units will be working as normal,
while the new construction and installation works take place within
the Units. There will be a very specific Unit shutdown window vary-
ing between one week and three weeks in each Unit to facilitate the
interconnection of all the new equipment, control systems, power
receiving and distribution systems, pipes, and cables, to the existing
equipment, after cutting out the existing pipes and cables. This was a
very critical contract requirement because this determines the extent
of production shortfalls for oil and gas the company has to plan for,
which in turn will impact the country’s oil export commitments, as
well as domestic power generation targets.

The project, due to its size and complexity, was awarded to multiple
EPC contractors, with clearly defined Units to be modified by each con-
tractor. The overall value of this project was in excess of USD 2 billion,
with a progressive and phased completion timeframe between 24 and 36
months.
Project Implementation: The projects were implemented successfully by
the EPC contractors. More than 40 million manhours were spent by EPC con-
tractors in project implementation, the predominant portion of which was
used for brownfield construction work. Despite this large volume of brown-
field work, there were only a few minor incidences of ‘lost time’ on the proj-
ect and the project had a zero-fatality record. All the EPC contractors earned
a decent profit on the project, and the owner had more efficient and safer
operation facilities completed with a minimum loss of production.
124 Front End Engineering Design of Oil and Gas Projects

KEY TAKEAWAYS
1. A contracting strategy that requires a fixed lump sum com-
mitment for the areas, which are clearly defined and specified,
and allows a re-measurable value for the areas, which cannot
be clearly defined is a ‘win-win’ situation for the owner, as well
as the contractors.
2. Two key requirements of the owner on this project were the
absolute safety during the brownfield construction phase,
which had potentially huge risks to owner’s assets and per-
sonnel, and adherence to the contract specified shutdown win-
dows in each Unit, as this was linked to the national oil export
commitments and domestic power generation targets. The con-
tracting strategy adopted by the owner recognized that put-
ting unnecessary cost pressure on contractors could jeopardize
these key requirements and that a fair contracting strategy
would avoid such unnecessary cost pressures on the contrac-
tors and allow them to focus on the key client requirements.
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Index

Note: Bold page numbers refer to tables, italic page numbers refer to figures.
adjustment Orders (AO) 53 Engineering, Procurement, and
Approval for Financial Expenditure Construction Management
(AFE) 37 (EPCM) 5
as-built 46, 79–80 EPC 5
EPCM 5, 29
Baywater OPCU Project 86 European Construction Institute (ECI)
best practices 56, 61 56,58
BOO 30
BOOT 28, 29, 30 Factory Acceptance Testing (FAT) 44
capital project proposals 22 feasibility 2, 9, 18–21
capitalization 49 Feasibility and Statement of
case studies 85 Requirements (SOR) (Assess
commissioning and handover (operate) 6 and Select) 6,
Commissioning in Commissioning, FEED 1, 2, 6, 13, 23, 24, 25, 27, 28, 29, 30,
Endorsement of Stable 31, 36-41, 51-53, 67
Operations, Issuance of close-out meeting 35
Provisional Acceptance deliverables 34, 35
Certificate, and Turnover documentation 79, 96
Certificate 48 execution plan 23
compressor selection 97 gone wrong 116
Concession Requests (CR) 51 importance of 71
construction (execute) 6 inhouse 32, 33
Construction Completion Certificate interface engineering 65, 68
(CCC) 46, 48 is uncertain 121
Construction Industry Institute (CII) maturity 56, 57
55-57 outsourced 32
contract model 28, 29 production of 62
contracting strategy 31, 32, 121 project definitions 27
contractor 10 quality of 45, 55, 56, 61
schedule 23, 63
desalter 71, 111 soil investigation and geotechnical
design basis for future provisions 110 data 78
document control index 45 summary of key activities 28
thicknesses 92
effluent water treatment project 108 Verification and Endorsement 116
emotional intelligence (EI) 2, 65 feed compositions 73, 75
Engineering Procurement & FEL/FEED 61
Construction (EPC) 29 Final Investment Decision (FID) 13, 36, 37
Engineering, Procurement, and Fire and Explosion Risk Assessment
Construction, definition 5 (FERA) 68

127
128 Index

Front End Engineering Design (FEED) 1, Novation 29

6, 27, 34–36
Front End Loading (FEL) 1, 12, 55, 63 OEM 30, 62, 63, 67
Front End Loading Index 56 ONGC 49
Front End Planning (FEP) 55 Open Book Cost Estimate (OBCE) 30
Openness, Conscientiousness,
gas-oil ratio (GOR) 74 Extraversion, Agreeableness,
gas scrubber 101 and Neuroticism (OCEAN) 66
GOR 74, 78 Original Equipment Manufacturers
Ground Penetrating Radar (GPR) 77 (OEMs) 39, 69, 115
owner company definition 8
HAZOP 53
Health, Safety, and Environmental perspectives–owner mindset and
(HSE) 2, 21 viewpoints 51
Health, Safety, and Environmental pipe rack 108–109
(HSE), Managing Studies pipe supports 108
during the Project 67 pipeline thickness calculations 92
heat exchanger 111 pipelines 91
plate heat exchanger 114
identification 6, 9, 13, 14, 15–17 pre-commissioning and
identification stage 14, 15 commissioning 44
Independent Project Analysis (IPA) 55 pre-commissioning and construction
interface engineering 33, 65, 68 completion certificate 46
International Association of Oil and Gas Project Asset Report (PAR) 49
Producers (IOGP) 63 project close-out report 53
investment decision makers 10 project complexity 31
Invitation to Bid (ITB) 32 project contracting strategy 122
iron sulfide 105, 106 project definition (define) 6
ITB Project Definitions/Front End
abundance of compositions 74 Engineering Design (FEED)
perspectives–owner mindset and 27, 34
viewpoints 51 Project Development Rating Index
stage 3.2 37 (PDRI) 58
project entities 11
Joint Industry Programme 33 (JIP33) 63 project execution plan (PEP) 36
project execution stage 42
key points to note 13, 26, 38, 49 project lifecycle 2, 5
Project Management Contractor
lessons learnt 80 (PMC) 10
Life Cycle costing (LCC) 70 Project Management Institute (PMI) 1
Lump Sum Turn Key (LSTK) 29 project proponent definition 8
project stages 6
Management of Change (MOC) 39, 78 punch list 46, 47, 48
Maturity and Accuracy Total Rating
System (MATRS) 56, 58 Quantitative Risk Assessment (QRA) 68
mechanical completion 46
media (Nutshell type) filter 105 Safety Integrity Level (SIL) 68
Merrow, E., and Nandurdikar, N.S. 66 shell & tube exchanger 114
Index 129

shell & tube type 112 Statement of Requirements (SOR) 2,

soil analysis 118 18-20, 24–25, 28
soil investigation, geotechnical data 78 storage tank 102, 103
soil investigation, geotechnical data and SWOT 15, 20, 24
site data 77
temperature approach 112
Special Purpose Vehicle (SPV), Table 4.1
temperature cross 112
Contract Models for Project
Turnover Certificate (TOC) 48
Execution 30
Specific, Measurable, Achievable, value identification 9, 12
Realistic, and Timely value improvement practices (VIPs) 56
(SMART) 35 Volatility, Uncertainty, Complexity, and
stage gate review committee 10 Ambiguity (VUCA) 2
stakeholders 10 von Mises method 95
standardization 62 VUCA, in project risk assessment 69