List of tables:

Table 1: List of project tasks 4

Table 2: Project Milestones 5

Table 3: Stakoholder analysis 7

Table 4: Contracts and their prices 8

Table 5: Investments of project 9

Table 6: Risk Assessment 14

List of figures:

Figure 1: Canisp field concept (Bowers, 2014) 2

Figure 2: Work Breakdown structure 3

Figure 3: Project matrix and critical path 4

Figure 4: Project Gantt chart 6

Figure 5: Stakeholder relations 7

Figure 6: Oil production 10

Figure 7: Production costs 11

Figure 8: Production income 11

Figure 9: Profit 12

Figure 10: Cumulative profit 12

Figure 11: Net present value 13

Figure 12: Decrease of oil price 13

Figure 13: Increase of exchange rate 14

Figure 14: Risk assessment map 15

Project Management - Canisp Assignment

1. Executive summary

Main goal of this report is to propose project management solution for Canisp oil field. This report is dedicated for Fitzroy Oil Company Board of Directors in order to help them decide whether to approve the project.

Project objectives and technical requirements are briefly explained. Project Canisp oil field development is clearly defined by breaking down the project into the five different stages. It will allow easier and more transparent project management. Relation between each tasks are graphically interpreted in project matrix and critical path is defined.

Project schedule is shown in the detailed Gantt chart and resources are allocated for each task. Levelling of resources done in Microsoft project shows the best possible way of project execution. Finish date of Canisp project oil field development is 5.4.2021.

Stakeholder analysis defines internal teams and external contractors and assigns their responsibilities among the project. Additionally, proposal of the employment of the second fleet will allow project to finish on 2.2.2021, but it will raise costs by £14 million.

Financial viability uses the fixed oil price and exchange rate ($110 per barrel and £1=$1.67) and shows that project will be successful with total profit of £700 million with return of investments equal to 1.022. Total net present value using discount rate of 20% is £228 million. External economic factors as oil price or exchange rate £-$ can influence project profit but only in case of average oil price is bellow $100 per barrel and average exchange rate is above £1=$1.86 during the production period (all other inputs from financial viability are fixed).

There are several risks to consider according to Canisp oil field development. Potential risks are listed, evaluated and preventive actions are proposed. Suspension of the install & tow up activities due to high risks during the winter time (October - March) would postpone finish date to 19.5.2021.

2. Introduction

2.1. Overview

Aim of this report is to provide project management proposal and financial viability study of the Canisp field development for Fitzroy Oil Company Board of Directors. The report proposes solution for all critical aspects of project management in order to get successful and on time project.

2.2. Project description

New oil field is located in the central North Sea area. The geological survey discovered that the field is small but viable. Design of the field is inspired by Shell field at Fulmar and its concept is shown in figure 1. Each of the six components will be constructed onshore by external contractors and then transported and installed to the site by Canisp.

Figure 1: Canisp field concept (Bowers, 2014)

3. Scope management

3.1. Project objectives

Development of project plan and milestones that will allow Canisp field to be done on time with minimum investment rising

Prove whether Canisp field project is financially viable or not

Investigation of influence of external economic factor on the project's profitability (exchange rate and oil prices).

Consideration of project's potential risks, causes of delays etc.

3.2. Project requirements:

(Bowers, 2014)

Detailed equipment design follows general design concept

Construction begins after the design completion

Each unit is constructed by external contractor, constructions can be executed in simultaneously

Each unit can be towed out and installed only after its construction onshore

Accommodation jacket can be installed only after the production jacket

Accommodation and control module only after accommodation jacket installation

Pumping and separation module only after production jacket installation

FSU installation only after production jacket installation

Hook-up and testing 1 connects SALM and production jacket

Hook-up and testing 2 connects accommodation and control module with the pumping and separation module

Final integration and tests can be conducted only after integrating all modules

3.2. Work breakdown structure

Project work on the oil field development can be divided into the five different stages. This division helps project to be easier to manage and control during its execution.

Figure 2: Work Breakdown structure

3.3. Project matrix and critical path

Project matrix and critical path were produced and calculated by using MS Project. Table 1 shows additional information needed for understanding project matrix and critical path. Predecessor and duration of each activity are established according the information and requirement provided by Fitzroy Oil Company (see chapter 3.2.). Tasks highlighted by red ink refer to critical path.

Table 1: List of project tasks

Figure 3: Project matrix and critical path

Critical path in this case are tasks 1,2,8,15,16 and 17. Duration of the path is calculated to be 1477 days.

4. Time Management

Proper time management is critical part of the every project. It is very important to establish durations of the activities and plan them carefully in order to accomplish efficient, effective and costs saving project schedule. Project schedule is demonstrated using Gantt chart created in Microsoft Project. Moreover, critical milestones of the project are proposed.

4.1. Project Milestones

Table 2: Project Milestones

4.2. Gantt chart

Figure 4: Project Gantt chart

Gantt chart was generated using Microsoft Project software. Resources were allocated for each tasks (see chapter 5.1) and levelled up in order to find the most efficient way of project execution. Estimated finish day is 05/04/21. Detailed Gantt chart that includes milestones as well as costs of each task and stages is shown in appendix A.

5. Human resources management

5.1. Stakeholders analysis

Stakeholder analysis is only conducted for stakeholder directly involved in project development and allocates their responsibilities and relation to Fitzroy Oil Company.

Table 3: Stakoholder analysis

█ Internal stakeholder

█ External stakeholder

Figure 5: Stakeholder relations

5.2. Teams availability

Fitzroy Company allocates its own specialized teams for all offshore activities and project design. For offshore activities instead of traditional 5 days working week, 7 days working week will be applied. Purpose is to accelerate the field offshore development. Moreover, work offshore includes many technically difficult operations that need to be done continuously without any interruption.

At the moment, it is suggested that only one fleet will be used for tow up and installations stage. However, there is a proposition to use two fleets in order to finish those activities faster, but the costs of the tasks will rise by 50%. Costs of the activities will rise from the original 28 million up to 42 million pounds. Deployment of two fleets will allow finishing the Canisp field development on 2.2.2021. It is up to Fitzroy strategic point of view whether this is suitable solution or not. However, spending £14 million to shorter project for only 2 months does not seem very beneficial. Gantt chart showing employment of two fleets is shown in appendix B.

5.3. Contracts

Fitzroy Company will employ six external contractors for Canisp project. Each of the contracts between Fitzroy Company and contractor will be fixed price type. It means those prices will vary only based on agreed parameters or any changes outside of contract scope requested by Fitzroy Company (Bowers, 2014). Each of the six contractors will construct one of the basic units of Canisp field. Table 4 shows agreed fixed prices and total expenses on contracts will be 255 million pounds.

Table 4: Contracts and their prices

6. Costs Management

This section discusses about the costs and budget needed for the Canisp project. In includes estimations of investment needed for Canisp field development, oil production profit, return of investments etc. Detailed financial viability analysis is shown in appendix C.

6.1. Investments

Development of oil field is significant and extremely expensive business. Costs of the each task of field development and total investments of the project are shown in table 5. It is assumed for the financial calculations in this report, that all investments are allocated into the one single year; 2020 (the fact, that the field development ends in April of 2021 is in this case ignored due to simplicity). Costs of each tasks is given, thus is too complicated to estimate exact costs for each year during the field development period.

Table 5: Investments of project

6.2. Oil production

Based on the research made by Fitzroy Company, oil production will continuously reduce every year of its 25 years-long production. Moreover, only 95% of the production can be converted into the saleable oil. Figure 6 shows oil production during the field lifetime in millions of barrels per year.

Figure 6: Oil production

6.3. Production costs and Income during the production

Oil production is expensive operation. It includes various sources of costs during the year (Bowers, 2014):

Share of company overheads is £36 million per year

Personal support and wages are £20 million per year

Maintenance and supplies are £36 million per year

£11 pounds per barrel is cost for basic treatment and transportation of oil

Income of the field is mainly dependent of the oil production and price. In the case of the Fitzroy Company it depends also on exchange rate between American Dollar and British Pound. It is because World price of oil is given in $, but Fitzroy company operates in £. For this financial prediction, it assumed that price of the oil is $110 per barrel and exchange rate is $1.67=£1. Additionally, oil taxation is assumed to be approximately £21 for barrel.

Figure 7: Production costs

Figure 8: Production income

6.5. Profit, cumulative profit, payback period, return of investment and internal rate of return

Comparing to previous chapters, this chapter includes year 2020 as investment year and 2046 as site decommissioning year. Canisp field decommission will cost £50 million and take one year. Profit is calculated by deducting costs and investments from income.

Figure 9: Profit

Figure 10: Cumulative profit

From figure 9 can be concluded that since 2035 oil field will become unprofitable. Based on the figure 10 payback period of investments will be approximately less than two years after the start of production. In overall, project Canisp will be success with cumulative profit of £700 million after its lifetime period and decommissioning.

Return of Investment (ROI):

ROI = Total profit [£M] / total investments [£M] (Bowers, 2014)

ROI = 699.95 / (635+50) = 1.022

Internal return of investment (IRR):

IRR was calculated to be 38% using Microsoft Excel.

6.6. Discounted cash flow analysis

Fitzroy Company current discount rate is 20%. Calculated total net present value is £228 million, thus project pasts 20% rate and can generate return greater than that. For further details see appendix C.

Figure 11: Net present value

6.7. Effects of changing oil price and exchange rate

Until now, it was assumed that oil price and exchange rate are fixed values. However, it is important to investigate how can be project Canisp influenced in case of changes of oil price and exchange rate. Based on the data from previous years and using linear regression (see appendix D), estimation of possible future values of price and exchange rate is made. From graphs on appendix D can be stated that oil price is likely to rise as well as exchange rate. This report will only consider situations that can compromise project financial viability. There are two cases: Decrease of oil price and increase of exchange rate. Calculations were done in Microsoft Excel by changing input data (data from Excel sheet is shown in appendix C).

Decrease of oil price

Figure 12: Decrease of oil price

From figure 12 can be stated, that decrease of oil price (exchange rate is not changing) can significantly affect project. Project would not be profitable in the case that average oil price during production is less than $100 per barrel.

Increase of exchange rate

Figure 13: Increase of exchange rate

Increase of exchange rate would be serious issue for project in case the average rate during the production would be more than £1=1.86 (figure 13). Oil price is fixed in this case.

7. Risk management

Risks are part of every project, therefore it is vital to be able identify them early, control them effectively or in the worst case solve them quickly.

7.1. Risk assessment

Following risk assessment is only the initial and takes into the account only possible risks of oil field development, it does not include risks associated with production, prices etc. It is highly important to assess and update risks regularly.

Table 6: Risk Assessment

Figure 14: Risk assessment map

Delays related to seasonality:

Based on that Canisp oil field is located in central North Sea, there are significant issues in some part of the year due to weather. In the period between October and March it is recommended that install and tow out operations should be avoided. It changes the previous project schedule and delay Canisp field development finish date to 19.5.2021 (see appendix E).

8. References

Bowers, G. 2014. Project Management Handouts, Canisp Assignment. University of Glasgow.

Bowers, G. 2014. Project Management Handouts, Lecture 2: Teams and contractors. University of Glasgow.

Bowers, G. 2014. Project Management Handouts, Lecture 6: Investment appraisal & financial modelling. University of Glasgow.