Project Management in Woodside – Past, Present and Future

M.K.Brennan
Woodside Energy Ltd, Perth, WA, Australia

Woodside Petroleum Ltd. has grown to be Australia’s largest publicly listed oil and gas
exploration and production company. Along the way, Woodside has executed many
significant projects with several costing in excess of A$1 billion.

In the past, the project management approach was inconsistent and sometimes insufficiently
robust. Consequently, project performance was highly variable. This plus a significant
forecast capital spend drove Woodside to develop a more rigorous and consistent project
management process. The OPREP (Opportunity and Project Realisation Process) process was
developed based on lessons learned and benchmarking of like companies which consistently
produce outstanding project outcomes.

OPREP has been applied to new projects since 1999 and so far the results are very
encouraging with a major improvement in key project outcomes. More work is being done to
embed this process and achieve outstanding project performance into the future.

1. Introduction

Woodside Petroleum Ltd. celebrates its 50th anniversary this year, since starting out as a small
oil and gas exploration company in 1954. Woodside acquired the first available exploration
permits offshore Victoria in 1956 and today has grown to be Australia’s largest publicly
listed oil and gas exploration and production company.

Woodside’s core producing assets are primarily located in Australia and last year production
started from its first international asset, an onshore gas field in Algeria. Woodside’s global
portfolio is illustrated in Figure 1.

USA

Africa Australia &

Asia

Exploration Acreage
Developments: Existing & Planned
Major Markets: Existing

Figure 1 – Woodside’s Global Portfolio

This paper provides an insight into the evolution and future direction of the project
management discipline and the opportunity and project management process used by
Woodside.

2. The Past (Pre 2000)

Although Woodside has existed since 1954, it was not until the early 1980’s that Woodside
started developing its first oil and gas facilities on the North West Shelf off Western
Australia. During the following two decades, Woodside executed a number of offshore and
onshore projects ranging in capital cost from A$200 to A$2900 million. These projects
included:

• onshore domgas, LPG and LNG plants,

• offshore fixed gas production platforms,
• offshore floating oil production, storage and offloading facilities,
• subsea rigid and flexible pipelines and trunkline systems,
• subsea production wells and control systems,

This was a period of considerable and rapid growth for Woodside and the oil and gas industry
in Western Australia. This growth took place from a limited base and the following
environment presented considerable project management challenges:

• early 1980s - no other large oil and gas developments in Western Australia,
• limited local project engineering and management personnel with oil and gas expertise,
• limited local oil and gas engineering and fabrication capability,
• heavy reliance on overseas based engineering companies,
• large projects were infrequent with long periods of time in between,
• Woodside business interests primarily confined to offshore W.A.

Compounding these challenges was the fact that Woodside’s project management capabilities
were still developing in those early days and characterised by:

• limited centralised project management function - each project developed their own
project management system, for better or worse,
• project teams were assembled using significant numbers of contractors and expatriates,
• limited recognition and structured development of in-house project management
capability.
• inconsistent, overall process to guide projects from conception to completion,
• lack of robust governance
• little learning from one project to the next

As a consequence, Woodside’s project outcomes were less than optimal as shown in Figures
2 and 3. The cost and schedule index is the ratio of the approved cost and schedule at the date
of project authorisation to the actual cost and schedule. Even after discounting the worst
performing project, these figures show an average cost and schedule overrun of 13% and
20% respectively. The other key indicator, actual facility performance versus design, is not
presented as it has proved difficult to retrieve relevant and reliable data.
 1.50

3
1.25
7 2
Cost Index

4
7
Ave. = 1.13
9 (excl. outlier)
1.00
8 5

0.75

0.50
1986 1988 1990 1992 1994 1996 1998 2000 2002

Year of Authorisation
Figure 2 – Project Cost Performance

1.50
Schedule Index

3
1.25
7 2 Ave. = 1.2
4
7 (excl. outlier)
9
1.00
8 5

0.75

0.50
1986 1988 1990 1992 1994 1996 1998 2000 2002

Year of Authorisation
Note: schedule is from date of
sanction to ready for start-up

Figure 3 – Project Schedule Performance

From a review of project close-out reports, it was clear that many of the things that could
have been done better were common between projects and that learning was not occurring
from one project to the next. The most common top ten lessons learned were:

1. Poor understanding of reservoir risks and uncertainties.

2. Project targets unclear/unrealistic and not owned by all stakeholders.
3. Inadequately resourced project team and inappropriate structure.
4. Inadequate senior management support.
5. Inadequate scope and commercial definition at project authorisation.
6. Inappropriate contracting strategy.
7. Inadequate risk and opportunity management systems.
8. Inadequate stakeholder management.
9. Late involvement of operations and construction in project.
10. Inappropriate standards.

2.1 The Case for Change

Looking forward, Woodside’s forecast project spend over the first decade of the millennium
was in excess of A$13 billion including expansion into unfamiliar international areas. The
structure of the company was also evolving from essentially a single business unit focusing
on Australia’s North West Shelf to multiple business units covering different products and
business activities.

The inconsistent project performance of the past had to be stabilised as the effective use of
capital was one of the most important factors in realising Woodside’s future growth strategy.
Even modest improvements in project performance could deliver significant savings given
the large capital spend. The case for a dramatic change in Woodside’s project management
capability was clear.

2.2 What Do We Change?

In 1998, a team was established to develop a best practice project management capability.
They benchmarked Woodside against other oil and gas exploration and production companies
and identified that the following key characteristics were common amongst companies that
consistently achieved excellent project outcomes:

Project Delivery Process

A formalised project delivery process applied consistently across the full life cycle of the
project from initial conception to handover and use by the customer. The process requires
projects to move through a series of controlled phases with decision points at the end of each
phase to determine if the project should proceed to the next phase. The overall process
focuses on ensuring the optimal concept is selected and value maximised prior to committing
to execute the project (Front End Loading) and thereafter on realising value during execution.

Organisation

Where possible, project teams are dedicated and the client is integrated with the prime
contractor. The project manager and key team members are appointed early (well before
approval is given to execute the project) and they remain with the project until completion.
Effective communication systems are established and alignment is achieved between the
team, stakeholders and decision makers on project goals and key execution strategies.
Stakeholders and decision makers are kept informed and engaged continually.
Resources

The project management discipline is recognised as a key skill and career paths are
established for project professionals. Training is provided to develop/maintain project
management skills and resources are provided to develop/maintain project management
processes/procedures. A centralised project management function is established with
accountability across the business to develop/maintain key processes, manage project
resources and provide specialist support.

Technology

Formalised processes are used to identify new technologies that could be utilised and to carry
out benefit/risk assessments. Decisions to adopt new technology are made early.

3. The Present (Post 2000)

Based on the outcome of the benchmarking and input from one of its venture partners,
ChevronTexaco, Woodside developed its own project delivery process, OPREP (Opportunity
and Project Realisation Process) and started to utilise it on new opportunities/projects from
late 1999. A dedicated OPREP Support team was established to develop the process, promote
its use and provide training/support.

It’s important to recognise that OPREP does not seek to re-invent established project
management fundamentals that are already well defined in texts such as the Project
Management Body of Knowledge (PMI, 1996). What it does is provide a high level
framework and tools to guide projects through the full life cycle. For the first time, Woodside
now had a robust and consistent project delivery process with a clear Woodside identity that
promoted common terminology and a way of thinking and acting.

3.1 OPREP – What is it?

As shown in Figure 4, OPREP fundamentally breaks a project down into a number of distinct
phases with clear objectives and deliverables. At the completion of each phase is a decision
point to decide if the project is ready to move into the next phase – if not, it is recycled or
dropped. The decision makers for each phase are identified up front and are continually
engaged as the project progresses, not just at the end of each phase when a decision is
required.
 FRONT END LOADING FEL

Value Identification Value Realisation

OPERATE &
ASSESS SELECT DEVELOP EXECUTE
EVALUATE
Identify and assess
1 2 3 4 5
Generate and select Develop & define Execute Operate and evaluate
potential value of preferred alternative Preferred alternative
opportunities

Clear Decision Points

at the end of each Phase

Figure 4 – OPREP Phases

Front End Loading – Value Focussed

The overall process is value focussed. The initial three phases; Assess, Select and Develop
are focussed on maximising value whereas the final two phases; Execute and Operate, are
focussed on realising value. The activities carried out during the initial three project phases
are collectively referred to as FEL (Front End Loading). This term recognises that the
greatest opportunity to maximise value in any project occurs at the front end – the objectives
of these initial phases is to identify the opportunity and solution with the greatest value and
define the scope, cost and schedule of the chosen solution within agreed accuracy bands
before committing to execute the project. The ability to influence a project’s value decreases
significantly during the Execute and Operate phases and the focus is on realising the value
generated in the earlier phases through good project execution. This is illustrated in Figure 5.

85 % o f V alue 100 %
15 % o f C os t
H ig h
FR O N T E N D LO A D IN G FE L

E xp e n d itu re

A b ility to
In flu ence
C o st/V alue V alu e /C o st In flu en ce
0%
A s sess S elect D e velo p E xecu te O p era te

$1$1 $10
$10 $10 0
$100 $10 00
$1000 >$1 0,0 00
> $10,000

Low
T im e R elative C o s t to m ake
ch ang es as the p rojec t
ad van ces

Figure 5 – The Value of Front End Loading

Measuring Front End Loading

The quality of the work carried out in the Assess, Select and Develop phases determines the
magnitude of the generated project value and the challenge is how to objectively measure
this. Woodside uses a FEL assessment and index to assess the quality of work performed by
the project team towards the end of the Develop phase, just prior to requesting approval for
the project to proceed. The FEL assessment and index assists the project team and decision
makers to decide whether optimal value has been achieved and whether the project is ready to
proceed into the Execute phase. It also highlights key outstanding issues and assists decision
makers to make better risk based decisions.

Woodside use an external consultant IPA (Independent Project Analysis) to determine the
FEL index by benchmarking key project input parameters to existing completed like projects
in IPA’s database. The IPA database shows a very strong correlation between certain key
input parameters and project outcomes. The higher the quality of key input parameters at time
of project approval, the higher the chance of successful project outcomes.

The FEL index is a score based on a number of key input parameters such as:

• quality of engineering and scope definition

• quality of cost and schedule estimates
• maturity of project management system and procedures
• quality of project execution plan and key supporting plans (eg contracting strategy,
quality management system, HSE management system, risk/opportunity management,
etc)
• organisational structure, involvement of construction and operations personnel
• stakeholder management plans

The FEL index and the potential range in scores is shown in Figure 6.

3 4 5 6 7 8 9

Best Good Fair Poor Screening Study

The Best Practical

Range at Authorisation Industry Average
at Authorisation (6.08)

Figure 6 – FEL Index

The OPREP Toolbox

The OPREP process includes a number of tools to assist project teams as they move a project
through its various phases and provides guidance on when these tools can add most value.
These include Value Improving Practices, Guidelines and Assurance Checks.

OPREP Value Improving Practices

These are best practices that consistently result in improved project value and are used most
frequently in the Assess, Select and Develop phases. Benchmarking by IPA shows strong
correlation between these best practices and good project outcomes. Some examples are:

• Opportunity Framing
• Facility Objectives
• Value Engineering
• Constructability Reviews
• Risk Management
• Lessons Learned / Best Practices
• Leadership & Team Building

OPREP Guidelines

These are documented guidelines for various management processes to provide a systematic
approach across projects. Some examples are:

• Business Proposals
• Contracting Strategy Development
• Cost Estimating
• Planning & Scheduling
• Audit & Reviews
• External Affairs Management
• Project Management Systems – Guidelines & Templates

OPREP Assurance Checks

Assurance checks are project reviews that support the milestone decision point to move to the
next phase. They provide the project team and decision makers assurance that the
recommendations are sound and maximise value. Some assurance checks are mandatory,
others discretional depending on the nature of the opportunity/project. The assurance checks
are carried out by an expert team independent of the project. Some examples are:

• Concept Selection Review

• Final Investment Decision Review
• Pre Start-up Review
• Post Investment Decision
• Benchmarking (Front End Loading Assessment)
• Cost and Schedule Estimate Assurance
• Commercial Assurance Review
3.2 OPREP Insights to Date

Positives

OPREP has been used to guide Woodside’s projects over the last four years and to date the
signs are very encouraging. It is generally well supported by senior management across all
divisions and has overwhelming support and buy-in from project staff. People firmly believe
it adds value to their opportunities/projects and recent FEL assessments and project outcomes
are supporting this. Figures 7, 8 and 9 show that since roll out of OPREP in late 1999:

• FEL benchmarking scores have improved on average 27%

• Project capex outcomes have improved on average 15%
• Project schedule outcomes have improved on average 21%
3

BEFORE OPREP AFTER OPREP

Best

Best
4
Front-end Loading Index

11 14
6 15
10 12
Good
5

9
27% 13
27%
Improvement
4
Improvement
in FEL
6

Fair

inBenchmarking
FEL Scores 16
3 Scores 8 17
7

Poor

11 7
1
Conceptual
8
Screening/

22 5
9

1998 1999 2000 2001 2002 2003 2004

Year of Authorisation

Figure 7 – FEL Index Improvement

 1.50
Before After
OPREP OPREP
3
1.25
7 2
Cost Index

(outlier excluded) 4
7
9 15%
1.00 improvement
8 5

0.75

0.50
1986 1988 1990 1992 1994 1996 1998 2000 2002

Year of Authorisation

Figure 8 – Project Capex Improvement

1 .5 0
B e fo re A fte r
Schedule Index

OPREP OPREP
3
1 .2 5
7(o utlier e xclu d ed ) 2
4
7
21%
9 im p ro ve m e n t
1 .0 0
8 5

0 .7 5

0 .5 0
1 9 86 1 9 88 1 9 90 1 9 92 1 9 94 1 9 96 1 9 98 2 0 00 2 0 02

Y e a r o f A u th o ris atio n
N o te: s ch edu le is fro m date of
s an ction to rea d y for sta rt-u p

Figure 9 – Project Schedule Improvement

Areas for Improvement

Despite the success of OPREP to date, there are areas that require improvement.

The use of OPREP and the level of understanding of its principles and strategic objectives is
inconsistent across all business units. For example, some commercial areas of Woodside’s
business consider it to be too constraining and not flexible enough – eg. for mergers and
acquisitions.

It’s clear that the “one size fits all” approach is not appropriate. This is particularly true for
smaller projects and projects which are being fast tracked. More guidance is required on how
to apply OPREP in these situations. Also, OPREP capability/support for the Assess and
Select phases of projects is weaker than the Develop and Execute phases.

There needs to be a robust feedback process to allow lessons learned to be captured and
OPREP improvements to be implemented.

4. The Future

In order to strengthen Woodside’s project management capability into the future and to build
on the improvements seen to date with the introduction of OPREP, the following changes
have been or are in the process of being implemented.

• Appoint a Development Director responsible for the delivery of projects across all
Business Units through the Assess and Select phases. Business objectives and key
performance indicators for these phases will be set by the Business Unit Directors and
agreed with the Development Director. The OPREP Support team will report to the
Development Director and this will assist with consolidating and strengthening the use of
OPREP in these critical early project phases in which value is maximised. The areas for
improvement identified in the initial years of OPREP’s use will be addressed by the
OPREP Support team.

• Appoint a Project Director responsible for the delivery of projects across all Business
Units through the Develop and Execute phases. Business objectives and key performance
indicators for these phases will be set by the Business Unit Directors and agreed with the
Project Director. This new role will provide consistency in the use of OPREP across all
projects and in project management systems/procedures, allow synergies across projects
and leverage to be more easily identified, facilitate project resource planning and
management and development of inhouse project staff.

• Establish an OPREP steering group with the Development, Projects, Operations and
Commercial Directors to:

o Agree/promote the OPREP principles & strategic objectives.

o Provide high level management commitment & support across the full project life
cycle.
o Provide a management forum to evaluate and approve changes to the process or
its implementation.
• Identify technologies/initiatives to support long term operating strategies & make the
decision to adopt or discard these early in the Assess and Select phases.

5. Summary

During the 1980/90s Woodside’s inconsistent project management approach resulted in

highly variable project outcomes, some with significant cost and schedule over-runs.

Variable project outcomes plus a forecast capital spend in excess of A$13 billion over 10
years drove Woodside to develop a more rigorous and consistent project management
process, OPREP. OPREP was developed based on lessons learned and benchmarking of like
companies which consistently produce outstanding project outcomes. The benchmarking
indicated that excellent project outcomes were strongly linked to a robust project delivery
process.

OPREP was developed and implemented from late 1999 with its focus being value
identification and realisation. Results to date are very encouraging with a 15-20%
improvement in project capex and schedule performance.

Looking forward, further changes are being implemented to consolidate and strengthen
OPREP and Woodside’s project management capability. The importance of value
identification during the early phases of an opportunity has been recognised by implementing
a development division responsible for progressing opportunities until they are ready to move
into the definition phase. Likewise, the importance of value realisation and the project
management discipline has been recognised by implementing a centralised project
management division responsible for project delivery across all business units. These changes
will greatly assist Woodside in delivering excellent project outcomes into the future.

Bibliography

Project Management Institute Standards Committee, 1996. A Guide to the Project

Management Body of Knowledge, PMI Publishing Division