conocophillips’ journey to full quantitative assessment of ... · 2010 daag conference...

2010 DAAG Conference

ConocoPhillips’ journey to full quantitative

assessment of project cost and schedule

Paul McNutt, Manager Project Risk & Reviews

Restricted confidential – Business Information

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The following presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section

21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. You can identify our

forward-looking statements by words such as “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions.

Forward-looking statements relating to ConocoPhillips’ operations are based on management’s expectations, estimates and projections about

ConocoPhillips and the petroleum industry in general on the date these presentations were given. These statements are not guarantees of future

performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Further, certain forward-looking statements are based

upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is

expressed or forecast in such forward-looking statements.

Factors that could cause actual results or events to differ materially include, but are not limited to, crude oil and natural gas prices; refining and marketing

margins; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas

development projects due to operating hazards, drilling risks, and the inherent uncertainties in interpreting engineering data relating to underground

accumulations of oil and gas; unsuccessful exploratory drilling activities; lack of exploration success; potential disruption or unexpected technical

difficulties in developing new products and manufacturing processes; potential failure of new products to achieve acceptance in the market; unexpected

cost increases or technical difficulties in constructing or modifying company manufacturing or refining facilities; unexpected difficulties in manufacturing,

transporting or refining synthetic crude oil; international monetary conditions and exchange controls; potential liability for remedial actions under existing

or future environmental regulations; potential liability resulting from pending or future litigation; general domestic and international economic and political

conditions, as well as changes in tax and other laws applicable to ConocoPhillips’ business; limited access to capital or significantly higher cost of capital

related to illiquidity or uncertainty in the domestic or international financial markets. Other factors that could cause actual results to differ materially from

those described in the forward-looking statements include other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’

business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC), including our Form 10-K for the year

ending December 31, 2008. ConocoPhillips is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking

statements, whether as a result of new information, future events or otherwise.

Cautionary Note to U.S. Investors – The U.S. Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to

disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally

producible under existing economic and operating conditions. We may use certain terms in this presentation such as “oil/gas resources,” “Syncrude,”

and/or “Society of Petroleum Engineers (SPE) proved reserves” that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S.

investors are urged to consider closely the oil and gas disclosures in our Form 10-K for the year ended December 31, 2008.


Agenda and Messages

• Agenda- The Challenge

• Embedding Quantitative Risk Assessments in an emerging Project Development Organization

- The Path

• The People, Processes, and Tools required to enact positive change

- The Result

• Impact on Cost and Schedule Predictability

• Take-away Messages- We have fundamentally restructured how risk is quantified and

communicated to senior management

- The central document is the Contingency Breakdown Report. It is a commitment between the Project Team and Senior Management


The ConocoPhillips WaySAFE

We will not compromise on our commitment to execute projects safely and

deliver operating assets that are safe for people and for the environment.

TRANSPARENT

We will openly and frequently communicate project status, priority risks,

and issues.

PREDICTABLE

We will consistently deliver on our promised AFD and AFE targets. We will consistently deliver

operability at or above the AFE target.

COMPETITIVE

We will consistently deliver competitive projects from a safety, cost, schedule, and quality

perspective that outperform our industry peers.


New Vacuum Furnace

PetaiPrudhoe I Pad

Upstream Downstream

CO

P O

pera

ted

JV

/ N

on O

pera

ted

EXECUTE

FEL - 3

FEL - 2

FEL – 0/1

WI GBR

Sweeney Gasification

CORE

HF Alky Revamp

TR Benzene SaturationBW MSAT -2 Benzene

HEP

PC Benzene Reduction

FCC Wet Gas

BO GBR

CCU1/CCU2

CO Boiler #1 Replace

Unit 27 FCC SCR

Unit 3 FCC WGS

Heart cut Ref.

138kV upgrade

API Separator

Atmospheric SCR

Yanbu

PSR-2 Revamp

CHP2

Eldfisk II

Jasmine

Kashagan Ph. 1

REX

Ekofisk 2/4L

Kashagan Ph. 2

Clair Ridge

Ekofisk S. 2/4 Z

Ekofisk I Plat. Cat 2

Golden Pass

El Merk

N-LNG 4&5

Statfjord Late Life

N-LNG 6

Ekofisk 2/4 VA

VTS Pipeline

Ekofisk Life of Field

Britannia LTC

B-LNG DN

B-LNG Gas Supply

Shah

AP-LNG

Bohai Bay 19-3

Christina Lake 1D

Alpine West

Surmont Ph. 2

Kebabangan

QG3Gumusut

Lookout

Christina Lake 1C

Malikai

North Belut

APSC

Syncrude ER

Su Tu Den 15-1

Belanak

Dayung Compression

Project Portfolio Radar View Dec 2009

Define (Net $):

Tier 1: <75M

Tier 2: >75M – 250M

Tier 3: >250M – 1B

Tier 4: >1B

Data Date: Dec 09 Print Date: Jan 10

LC ULSD

BO No 3 Reformer

BI Crude & Vac.

Wilhelmshaven

Kentucky NG

Tommeliten

Parsons LakeBrodgar Infill

News DS 1P

West Sak Phase 2

Enochdhu

Tor

Rivers Phase II

Alder

Uge

Faregh II

NC-98

North Gialo

Dofra Jofra

Prudhoe I Pad

SunriseUbah

Mackenzie GP

Petai

TIER 1

TIER 2

TIER 3

TIER 4

LEGENDBlack – Active

Red – On Hold

7


Project Presence Across the World

Australia LNG (APLNG) Upstream

Australia LNG (APLNG) Downstream

Australia LNG (APLNG) Pipeline

Greater Sunrise

FEL 2

FEL 3

Execute

FEL 0/1

Downstream Upstream

2 3 4 2 3 4

TIER

*

Beaufort Offshore (Amauligak)

Christina Lake - Phase 1C

Foster Creek - Phases 1D

Syncrude Emissions Reduction (SER)

Christina Lake - Phase 1D

Mackenzie Gas Pipeline & Gathering

Parsons Lake

Surmont Phase 2

Syncrude Mildred Lake North Mine Train Replacement

Surmont FMP

Thornbury

Alyeska Pipeline Service Co. (APSC) Strategic

Reconfiguration

Alpine West (Alpine Satellite CD-5)

Denali ANS Gas Pipeline

Prudhoe Gas Partial Processing

Prudhoe I-Pad Development

Lookout (Alpine Satellite CD-6)

AL Control System Upgrade PH1 & PH 2

AL FCC Wet Gas Scrubber

BI Low Sulfur Gasoline Phase 2

BG Gasoline Benzene Reduction

Kentucky New Gas

SF Hydrocracker Expansion Project (HEP)

SW Sulfur Recovery Unit SRU

SW Unit #3 FCC WGS

WR CCU1 and CCU2 Concent Decree Improvements

WR Coker and Refinery Expansion (CORE)

BI New Crude & Vacuum Unit

LC Ultra Low Sulfur Diesel

PC Benzene Reduction

TR HF Alky Revap

Rockies Express (REX) Pipeline

Golden Pass LNG Terminal

Ursa (Waterflood)

Sweeney Gasification

Ekofisk I Platform Removal Cat.2

Statfjord Late Life

Ekofisk 2/4 VA

Ekofisk Accommodation 2/4L

Ekofisk South 2/4 Z

Eldfisk II

EMK EL MERK

N-LNG Gas Supply Train 6

N-LNG Gas Supply Trains 4&5

Brass LNG Downstream (2 Trains)

Brass LNG Gas Supply Upstream

Immingham combine Heat & Power (CHP2)

WH - Upgrader Project

VTS Pipeline

Harrison

Kashagan Phase 1

BTC Expansion

Kashagan Phase 2

Kazakhstan Caspian Transportation

YK (Yuzhno-Khylchuyuskow) Field

YA Export Refinery

Qatar Gas 3 LNG

Abu Dhabi Shah FieldML PSR-2 Revamp

Bohai Bay 19-3 Phase II

North Belut Development

Gumusut - Sabah

Su Tu Den (NE) - Block 15-1

Belanak LPG - FSO

South Sumatra Liquids Transportation (SSLT)

Kebabangan Integrated Oil & Gas

Malikai Discovery - Sabah

Su Tu Trang - Block 15-1

Data from eReport Sep/094


Project Development People and Portfolio Direction

131 203 250 240

839 681750 807

935950

985764

19051834

1985

1811

0

500

1,000

1,500

2,000

2006 2007 2008 2009

Year

Head

co

un

t

Central PD Org Global PD Community Contractor Staff on PMTs TOTAL

Glo

ba

l P

roje

ct

Deve

lop

me

nt

Hea

dc

ou

nt

11

24 25

33

6

17

7

10

1

15

10

0

20

40

60

80

100

120

Upstream Downstream

No

. o

f P

roje

cts

Execute FEL 0 FEL 1 FEL 2 FEL 3

$26,761

$79,863 MM (99 projects)

$13,900

$8,609

$15,748

$14,845

$27,753 MM (49 projects)

$787

$7,992

$51$12,671

$6,251

Glo

bal P

roje

ct

Po

rtfo

lio

by P

has

e

We are ~1800 people managing

a $108 B net portfolio with an

annual capital spend of $4-8 B net

Trends for 2010-2012 include:

-Replacing contractors with employees

-Enhance the COP-way

-Gain transparency and predictability

-Central organization at steady state

-The toolkit largely built, limit changes

-Focus on quality implementation

-Charles Rivers validated pathforward

-New and challenging opportunities

-Average project size is increasing

-New country entry (Abu Dhabi, KSA)

-Largest ever operated in existing

BUs (Surmont 2, APLNG)


2011+20102007 to 2009

Project Risk and Reviews enable transparent

communication and improve project predictability

Risk Management

• Thorough post audits

complete the cycle on

projects risked in FEED

• Expansion to project drilling

and portfolio-level risking

Risk Management

• Risk Register 1.0 then 2.0

• Contingency Breakdown

Report established 2008

• Contingency Drawdown 2009

Risk Management

• Emphasize execution risk

management with coordinators

• Introduce management reserve

and stretch targets

People and Training

• Central team of 4 risk

specialists and 4 Upstream BU

specialists established

• Central engagement manager

team of 6 established, roles

defined and codified

Engagements & Reviews

• Engagement Process and

Planning established 2008

• AFF review dropped and fit-for-

purpose reviews emphasized

• Legends Program started


• Enhance Engagement Plan quality,

depth, and coverage

• Formalize review framework

• Expand Legends and define role

versus consultant

People and Training

• Expand training to teams

through Capstone (PDC), online

aids, and thorough Standards

and Procedures

• Enable risk coordinators on

projects


• Reviews are inclusive of partners

• Seamless integration with PAG

and other corporate functions

People and Training

• Best project engineers are

rotating through coordinator

and specialist roles

• Best project managers are

rotating through as

engagement managers


Cost build-up illustration and definitions

Facility

Cost

Estimate

Premise

Schedule Risk Events

Cost Risk Events

Estimate Variance

Drilling Cost(if applicable)

Stretch Target

(Premise plus Variance )

P50 Facilities Installed Cost

(Stretch Target plus

Management Reserve)

P50 Total Installed Cost*

Management Reserve

(Sum of Risk Events)Contingency

(Sum of Uncertainties)

Project Development Manages FIC for projects >$75 MM net

*All cost elements include associated escalation


Contingency Breakdown Report (CBR)

is the transparent “contract”

Estimate

Breakdown

and Cost

Variance

Cost Risk

Events

Schedule

Variance and

Risk Events

Explanatory

Notes

Foreign

Exchange

SensitivityEscalation

Scenarios

SummaryExcluded

Risks

Project

Description


Risk Management InterfaceseReporting

Risk Register

CBR

Risk Model

EPMS

PertMaster

Quantified Risk Details

Modeling Results

Modeling Results

Contingency

Risk

Register

Modeling

Results

Drawdown Chart

Risk Register

Progress Curve


Data is averaged on a cost-weighted basis for projects greater than $75 MM net

Cost and Schedule Performance versus Funding (Predictability)

-20%

-10%

0%

10%

20%

30%

40%

-20% -10% 0% 10% 20% 30% 40%

Duration Variance From Original Funding

Co

st V

aria

nce

Fro

m O

rigi

nal

Fu

nd

ing

-20%

-10%

0%

10%

20%

30%

40%

-20% -10% 0% 10% 20% 30% 40%Duration Variance versus Peers

Co

st V

aria

nce

ve

rsu

s P

ee

rs

Target

Over budget / ahead of schedule

Over budget / behind schedule

Under budget / ahead of schedule

Under budget / behind schedule

Higher costs / shorter duration

Higher costs / longer duration

Lower costs /shorter duration

Lower costs/ longer duration

Cost and Schedule Performance versus Peers (Competitiveness)

Avg.

2003-2006

According to Charles Rivers Associates:

“ConocoPhillips’ Project Development Organization is on the right path to effectively support world class project delivery”

Target

Avg.

Since 2006

Avg.

2003-06

Avg.

Since 2006

The result of changes to date is that project

performance is improving significantly


Back-up Slides


PRR Organizational ChartManager Project Risk

and Reviews

Paul McNutt

Engagement and

Reviews Supervisor

Kendra Lema

Risk Specialist

Supervisor

Jeff Cooke

Admin. Assist.

Barbara Martin

Lukoil Secondees

Engagement Manager

Tom Indelicato

Engagement Manager

Oddvar Knardal

Engagement Manager

John Pickering

Engagement Manager

Nasser Fahmy

Engagement Manager

Lorena Van Metre

Risk Specialist

John Cloward

Risk Specialist

Todd Bilstein

Risk Specialist

Don Parker

Portfolio Analyst

Mireya Kumar

Portfolio Analyst

Chris Cooper


As expected, the data show a tendency for

contingency to decline over stage gates

Number of CBRs

Percent of P50 TIC

Two standard deviation error bar

y = -0.027x + 0.248

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0-Pre-AFF 1-AFF 2-AFD 3-AFE 4-Post-AFE

Stage Gate

Pe

rce

nt

of

P5

0 T

IC

0

5

10

15

20

25

30

Nu

mb

er o

f CB

Rs


Risk Category Definitions

Internal External

Tactical

tangible

Easier to quantify

Definition“Degree of readiness”

What are we building? How ready

are we?

Examples:

Scope defined, contracts,

onshore/offshore

Strategic

less tangible

Harder to quantify

Technical“Degree of difficulty”

How difficult is it to complete the

project?

Examples:

Arctic conditions, pipe corrosion

Stakeholder“Degree of control”

Who influences our project

outcomes?

Examples:

Partner misalignment, permit delays

Organizational“Degree of complexity”

What people, processes, or tools

do we lack to successfully execute

the project? Examples:

Team selection, change management,

processes and procedures


The percent of total number of uncertainties

identified by type has remained quite stable across

time periods

0%

20%

40%

60%

80%

100%

2008H1 2008H2 2009H1

Time Period

Perc

en

t o

f T

ota

l N

um

ber

of

Ris

ks I

den

tifi

ed

Stakeholder

Organization

Technical

Definition


The percent of total risk event impact has changed,

but changes in the project slates and small sample

sizes make drawing conclusions difficult

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008H1 2008H2 2009H1

Time Period

Perc

en

t o

f T

ota

l R

isk E

ven

t Im

pact

Stakeholder

Organization

Technical

Definition

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