RISKS FACTORS & MANAGEMENT IN OIL AND GAS OFFSHORE PLATFORM &

PIPELINES CONSTRUCTION PROJECT

A CASE STUDY OF:

“HAI SU TRANG (HST) FULL FIELD DEVELOPMENT & HAI SU DEN(HSD)

EARLY PRODUCTION SYSTEM DEVELOPMENT”

By

Bui Thanh Nam

Abstract

             

Oil and gas offshore platform & pipelines are generally the most economical way to transport large quantities of oil or natural gas over states or even country. In order to extend its life expectancy, an offshore platform & pipeline construction risk management has become more important nowadays.

Oil and gas offshore platform & pipeline construction risks can be very high. They depend on how effective an organization is in managing its platform & pipeline transmission system. For an example, even the slightest defect on pipeline surface can bring great amount of oil and gas leakage. It will but human lives risk, pollution concern to environment as well as bring damage to millions dollars’ worth of property and asset.

It is definitely a necessity for a platform & pipelines manager to keep learning and be aware of the updated risk management of offshore platform & pipeline construction to ensure a more efficient and safer as well as profitable offshore platform & pipeline construction.

In this report, by the dimension of this study, the author would like to discuss about risk management of oil and gas offshore platform & pipeline construction and some issues of offshore platform & pipeline risk management recommendations in author’s experiences in a case study.

Executive summary

Rationale of research

This research has been conducted to identify risk factors & management in offshore platform & pipeline construction projects.

Objectives of study

To study best practices in international offshore platform construction and to review the case study of Vietnam offshore platform construction.to develop frame work for access and analysis for risk management in offshore platform & pipeline installation and management.

Methodology  

By using exploratory approach, the author will conduct the main contents of platform and pipeline risk management. Hence, the activities of platform and pipeline risk management in a specific project is reviewed and analyzed. Then, the author will propose recommendations and requirements to improve the risk management system of pipeline installation.

Findings and conclusion

This study focuses on risk management in oil and gas offshore platform and pipeline

Installation projects in Vietnam. In this research, list of risks was formed by theories and from real practice of oil and gas risk management by using risk assessment index model.

In addition, a case study was conducted in order to determine the effectiveness of risk management in practice by oil and gas risk manager.

The signed EPCI contract between PTSC - “as Contractor” and its Client - “as Company” stipulated as follow:

“Company reserves the right to require Contractor to pay to Company US $50,000

(United States Dollars Fifty Thousand) per instance if Contractor replaces Key Personnel without Company approval. Such amount is agreed as a genuine pre-estimate of the disruptive effect on the Work due to Contractor’s unauthorized withdrawal of its Key Personnel. This provision shall not limit Company’s other rights under the Contract in the event of recurrent unauthorized withdrawal of Key Personnel by Contractor."

·         However Contractor was not aware about this regulation, they replaced their Procurement

·         Manager and Project Control Manager without Company’s prior approval and later on

·         Company detected this issue and they claimed 100k for these two unauthorized replacements. These problems have not been settled so far.

·         Contractor threatening Client to stop work due to VO not approved or to approve a Cost impact related to a specific additional task.

·         Delay in issuance of shop drawings by design consultant and slow response in capturing design changes and Vendor Data incorporation.

·         Significant design changes made after bid award (Early Gas) resulting in big value VOs

·         Procurement were not done timely as EPC contractors elected to negotiate further cost reductions with the lowest bidder as the price exceeded their original budget. This led to more time required to issue Pos.

·         Limited procurement experience. Most purchases were relying on Client orConsultant’s which at times resulted in backlog

This research has achieved its objectives including:

1.      To study offshore platform and pipeline installation processes and methods and study risks management in installation of offshore platform and pipelines in recent international best practices. 

2.       To review a case study of the platform and pipeline installation risk management practices in a Vietnam pipeline company.

3.       To provide recommendations and propose some key points that can be applied to Vietnam offshore platform and pipeline Operation Company to improve the effectiveness of offshore platform and pipeline installation and management.

Recommendations

·         The above LL shows that if Contractor/Client has perfect Risk Management system/personnel which clearly identify all required contractual issues in early stage, they will not encounter this problem and harm the long term relationship and reputations.

·         Specify in Contract that Contractor shall not threaten to stop the Works i.e. to continue to execute the Works even though any commercial issues regarding any impending VOs have not been resolved yet.

·         EPC Contractor / Design Consultant must have dedicated and full time engineer / designers at all time during the engineering & fabrication phase. Detailed AFC and shop drawings tracking system suggested to be implemented to monitor drawings issuance progress. To avoid this situation if possible, as detailed design and procurement activities were halted impacting project schedule.

·         Obtain ALL cost impacts upfront, including air freighting/ expediting costs. Assist PTSC in identifying the changes to expedite finalization of cost impacts.

·         Obtain partners and PETRONAS buy-in of the changes upfront, or at least notify them first.

·         Avoid award to multiple vendors, if possible and stress that lead time should be the driving factor. These should also be specified in the Contract’s T’s & Cs. Client purchase as many long lead materials as possible.

·         Specifications for LLIs should be delivered by FEED.

·         Insist on experienced procurement personnel at bidding time or indicate in bid specs Client mobilize additional personnel during procurement phase. Document controller to keep track and file paperwork to preserve history in case of technical queries later.

Seminar on Social Transition and Technological Development of Japan 

By

Dr. Takayuki Minato

Graduate school of frontier sciences

University of Tokyo Japan

The seminar was conducted @ CEIM, School of Engineering & Technology Asian Institute of Technology Bangkok. On 22 May 22, 2012.

During the seminar Dr. Minato shared information about Japan’s government measures and policies for environmental issues. How Japan is trying to reduce GHG emission through alternative technologies to ensure sustainable development.

The second part of seminar includes possible future social change in technology driven society.

Dr. Minato said, in many cases technologies are regarded as economic tools; however he tried to focus on long term perspective of society as whole. Further he said, technology is not only physical solution, but also transforms our society in certain ways, and claim that policy making should take interdependency technological development and social change into consideration.

Dr. Takayuki, Minato and Dr.  BHW Hadikusumo

CEIM graduation party for May 2012 batch @ Korea House AIT main campus.

INTERIM PAYMENT & VARIATION ORDER MANAGEMENT FOR  HIGH-RISE BUILDING PROJECT

A CASE STUDY OF INDOCHINA PLAZA PROJECT.

by

Trinh Vuong Duy

Abstract

In recent years, construction industry in Viet Nam is booming. Both Government and private sectors develop many projects in infrastructure and new cities. Especially, high rise buildings become attractive to many developers because of high profit and saving land asset.

In general, to deliver a project, one of the most important parts of process is contract management. A good contract must cover most of the significant cases that potentially happen during process of construction to prevent from disputation. Nevertheless, in the real life, people who control contract management have not got enough experiences to foresee matters may arise in the future. A regular error of contract is the lack of specifications. That will support contractors to apply low quality materials in to project. Above reasons are only examples of insufficient contracts, besides, there are many reasons that cause the contract fail.

The report analyzes to find problems in contract of Project Indochina Plaza Ha Noi, but focus on payment & variation issues. Then report will recommend solutions for specific cases. The report can help the owner to improve contract management of the project, or apply it for other projects.

Executive summary  

Rationale of research

This research has been conducted to indentify the problems of payment and variation in the construction projects and the problems with owner and contractor regarding payment and variation.

Objectives of study

To identify frequent problems, causes in payment and variation in construction projects.  Suggest frame work for payment & variation for improving situation of practice in construction.

Methodology

The exploratory research method is used to study frame work of payment & variation in construction project, application of frame into Indochaina project to identify problems to adjust in contract and to propose suitable solution for future projects.

Findings and conclusion

Contract management being important step in the construction as it control cost of project and rules and regulation regarding cost.

The big issue in construction works is delay of payment which actually is supposed to pay each month to cover expenses and due to this contractor always claim higher then what he did, causes dispute.

The representative of owner intentionally drives design at initial stage to cause variation order at the end to benefit him. Project cost overrun mainly comes from this issue.

Recommendations

The recommendations are divided into groups according to area specific

1.      Payment frame work  

·         What amounts will be paid under payment terms.

·         When a payment will be assessed in contract term.

·         How percentage work done will be defined.

·         What information need to be defined between two parties.

·         Ownership of material should be proven to transferring to owner, to pay for offsite material.

·         Owner has right to access to inspect or collect offsite material.

·         A full refund for the value of materials and components will belong to owner before they move to contractor’s factory.

·         A full refund for the value of any work off site on these materials and components will belong to owner after ownership of those are transferred to contractor.

·         The contractor has to buy insurance for materials or goods offsite that used for the owner’s project.

·         The amount supposed to be withhold and the basic for withholding payment.

·         The notice shall be informed to the contractor before the final date for payment.

·      The contractor can suspend work with 7 days notice with reason for suspension.

·      The contractor only can suspend the work that is not being paid, but not all the work.

·      The contractor shall provided time extension for any delay caused by performance pending, or compensated a reasonable cost by the suspension.

2.      Variation order frame work

To mitigate variations arise in construction project & dispute between parties these issues need to be controled in Design Stage & Construction Stage.

·         Design stage

The owner is major cause because in variation order sometimes due to lake of experience, for aesthetic appearance and to use cheaper material, so there is need of accurate estimation for financial plan & cash flow will required to reduce issue and review of contract document especially drawings should be clear from ambiguity so that contractor should not take advantage from it.

·         Construction stage

finalize quantity and confirm that is variation or not. So site investigation of variation is

In some cases, the consultant can not assess quantity based on drawing, or doubt on

Need of variation order assessment procedure to be cleared and agreed by parties at initial stage of project to reduce problems, variation orders that involve change in original price will be approved in writing by owner before execution of work.

Owner should hire project management consultant to negotiate rates in variation orders professional team can help in negotiating to minimize negative impacts of variation

 reducing the cost.

the   variation submitted by contractor. He can physical check with the contractor to

The main dispute that occurs is different assessment of work; contractor should explain the procedure of work, expenses of work, material and labor etc.

very important, it would help consultant to assess accurately the variation order.

FEASIBILITY STUDY REPORT FOR URBAN

INFRASTRUCTURE PROJECT

USING LOAN FROM OFFICIAL DEVELOPMENT ASSISSTANCE (ODA).

A CASE STUDY OF LAOCAI CITY DEVELOPMENT PROJECT

FUNDED BY WORLD BANK

by

Nguyen Viet Cuong

Abstract

The development of socio-economic infrastructure plays a very important role in the country developing strategy, it is a major factor to help developing country reducing the poverty. The fund for the infrastructure development can be from many sources: private sector, counterpart, mixed credit and ODA loan…In order to meet the huge demand on infrastructure project development, the preparations of project investment such as project feasibility study is specially paid attention by Project Management Units.

Furthermore, with the project using the loan from international Donors, the feasibility study is not limited in project financial aspects like loss or profit, it also studies the other social aspect such as safeguard policies, economic benefits, benefit to the residents within project… The project feasibility study report therefore also be considered as approved factor for the Donor to give the loan.

The purpose of this study is to identify the process to prepare a feasibility study report for the urban infrastructure development project using the loan from World Bank. this process of preparing feasibility study report need to be followed the government instruction as well as complying with the World Bank regulation.   

Executive summary  

Rationale of research

This research has been conducted to indentify the course of action to prepare feasibility study report for the urban infrastructure development project using loan from World Bank.

Objectives of study

To prepare feasibility study report following guidelines of five funding agencies (Asian development Bank, French Agency, World Bank, Japan Bank for International Cooperation, German Bank for Reconstruction) to identify risk of unrealistic FS report preparation and to analyze problem during preparation of FS report.

Methodology

In this research methods are followed in accordance with the five funding agencies i-e step by step completion of FS report from collection of data to provincial people approval and World Bank non-objection letter.

Findings and conclusion

Apart from the project financial advantages, the significant advantage from project implementation is that the Project Owner and project shareholders particularly the Consultants are approached to the international standards in project preparation and implementation. Report helps in making decision of either invest or not to invest for construction.

The project shareholders, at any time during project implementation, must take note on the compliance of Donor’s guidelines, as World Bank specialists supervises strictly the project implementation to ensure the effectiveness of fund usage and development criteria are complied.

The project FS report has to be prepared in compliance with both Lender’s guideline and Governmental rule and regulation. This appears to be the biggest challenge for the Project Owner and FS Consultant, that why the selection of FS Consultant need to be always considered carefully with the Non-objection from the Donors.

The other issues such as the sustainable development and Community Awareness in sanitation and environment, institution and capacity building also need to be considered carefully and differently from the normal construction investment project

During the FS preparation stage, the difficulties will be occurred due the lack of experience in project management from project owner to this new concept of total project development, thus, the improvement of project communication and information sharing must be paid attention to avoid the unnecessary delay.

Recommendations

The FS report is more difficult and complicated when compared with commercial project report. The main procedure and guidelines are defined by donor agency and lenders criteria, so I can only give my recommendations to prepare reliable FS report using World Bank loan in particular.

·         Project management unit should be set up at early stage; matrix structure under control of provincial leader.

·         The more accurate data, the more reliable report will be so need of proper survey team and procedure.

·         As FS report preparation will be in direct supervision of World Bank so consultant need to have experience of working with WB and have experience in development of similar projects.

·          As FS preparation team is different from presentation team to World Bank expert, so there is need of proper communication system among stakeholders it can be done by telecom conference with minute notes. 

INVESTMENT COST CHANGES FOR AGRICULTURAL PROCESSING PLANT

by

Nguyen Nam Cuong

Abstract

Vietnam is a developing country with about 70% of the population works in the fields related to agriculture and rural. Through a process of development since the Doi Moi to now, Vietnam has become one of the world’s leading exporters of rice and many agricultural commodities such as coffee bean, cashew nut, black pepper… However, almost of agricultural commodities are exported in raw material types or semi products. On other hand, the procurement and exporting system has not been paying attention enough to develop correspondingly.

As the result, the value of exported agricultural products of Vietnam is normally underestimated in the international markets because of low quality. The low margin of agriculture products, in turn, contributes to increase income gap between rural and urban area. Therefore, one of the key objectives of the Vietnamese Government is to develop systems for storage and processing of agricultural products, improving production and processing capacities, autonomy in purchasing and export of agricultural commodities with quality, contributing to improving Vietnam’s position on world agricultural markets.

Executive summary  

Rationale of research

This research has been conducted to find out the way for capital estimates and analysis of estimates

Through frame work, the focus of evaluation is on financial problems analyze and change in actual cash flows and why these changes occur.

Objectives of study

To propose a solution through analysis, doing general feasibility study of project and analysis, evaluation of project cost changes.

Methodology

The qualitative approach has been used to resolve issues during construction to achieve performance.

The process includes data collection, processing and data analysis. Considering mutual relationship inside and outside using standards, normative in accordance and propose solution.

Findings and conclusion

Investment project being important document for owner to assess investment decision, owner can see big picture of project.

However the important factor in investment project is construction cost, which always seen with bias. The feasibility study is always dependant on owner and consultant and project management methods so as to reduce risk in cost fluctuation. And owner can control cash flows.

 List of factors affecting investment project

• Expertise and experience in project management of the Owner.
• The financial capability of the Owner.
• The professional ability and knowledge related to the field of investment consultancy and project design.
• Ability to coordinate the implementation of tasks between the Owner and contractors design and consulting in the preparation period of investment.
• Ability to coordinate between the Owners and construction contractors in the construction process.
• The professionalism of the construction contractor.
• Mechanisms and incentives to support investment in the locality.

The agricultural processing plant from initial stage to implementation is long process with constant change; thus success of project depends upon owner control on such movements and ensuring quality and time of investment.

During the project, the change in cost is often by different reasons, divided into four stages.

1.      The cost of construction in terms of rates of investment costs for Feasibility Study.

2.      The cost determined by the total estimated cost.

3.      The value determined by the construction contractor's proposal is approved.

4.      The actual value of the settlement package.

It is almost impossible to determine the final cost of each package at construction stage except package having fix-price, and change in cost can only be observed in above three steps.

For the changes in fourth stage that can determine final value,it is necessary to consider risk in construction process

·         Project area actually decreased compared to the record.

·         The detail design is inappropriate to the construction.

·         Price volatility of construction materials.

·         Difficult to find workers and construction equipment.

·         The impact of weather on the construction process.

·         Fluctuation of currency exchange rates.

The owner can have actively appropriate countermeasures, to minimize the negative impacts, including the choice of contractual form, in accordance, and contract with the consultant of supervisor, design consultants and contractors to strictly control the changes arising in the construction process. These are also the mission of Project Management.