APPLICATION OF A RISK-BASED ASSURANCE PROCESS TO A MEGA LNG LIQUEFACTION PROJECT

Transcription

1 APPLICATION OF A RISK-BASED ASSURANCE PROCESS TO A MEGA LNG LIQUEFACTION PROJECT John Holding Venture Assurance Manager, OKLNG Free Zone Enterprise 10, Greycoat Place, London SW1P 1SB, UK john.holding@oklng.com Chris Hughes Value & Technical Assurance Manager, OKLNG Free Zone Enterprise 10, Greycoat Place, London SW1P 1SB, UK chris.hughes@oklng.com OVERVIEW LNG is produced by a very capital intensive industrial process. Manufacturers of LNG cannot acquire market share by differentiating it from the product offered by other producers, nor on price. Since LNG is an internationally-traded commodity its price is set by the marketplace based on actual and perceived supply & demand and broader macro-economic considerations. The enabler in this value chain is the LNG Liquefaction Plant which must have effective project management techniques applied throughout the design, engineering and construction implementation phases that will be successful in supplying the LNG at a competitive price on the world market. At OKLNG it was recognized that the project management methodologies that had been applied to other similar projects would need to be extended in the areas of Value Assurance because of the regional challenges and the need to align the perception of risk and uncertainty between the shareholders in order to be able to land an agreement on the commercialization criteria of the project. The Project Team considered it a necessity to create an integrated methodology, defined as the Risk Based Assurance Process, which was needed to be in place to be able to build a liquefaction facility to compete with other Atlantic Basin producers of LNG. This paper examines some novel techniques around Value Assurance and how they are being deployed by OKLNG to compete at a superior level in the present challenging environment. INTRODUCTION 1. Proposition All major capital project investments seek to provide a return to their owners commensurate with the risks associated with the business sector concerned. Established project management practice starts with proper project definition and forward planning followed by careful management of costs, time and resources (CTR) during the execution phase so as to extract maximum economic value from the investment. In addition, today s project management techniques call for the routine application of risk management and value assurance processes in order to reinforce the project s value proposal. This paper takes as a null hypothesis (H o ) that fully effective project management will lead to value maximization whereas our proposed alternative hypothesis (H 1 ) is that without the addition of an appropriate Risk Based Assurance Process maximum value will not be achieved. The case of the OKLNG Liquefaction Project in Nigeria is used to support this contention. It is relevant that many major capital investment projects today are running into $ multi-billions when the engineering contracting industry is overheated and struggling to keep up with orders. Consequently bidders can pick and choose which projects they tender for and what price tag they offer. The result is that record high bids are being tendered and, compounded by high oil & gas prices, we see little sign of - 1 -

2 relaxation soon. With respect to LNG liquefaction projects, currently quoted construction costs per tonne of output have multiplied in the last 10 years even though train sizes, hence economies of scale, have also multiplied yet not as much. We seek to develop our alternative hypothesis against the above background. 2. The OKLNG approach to the challenge of Value Management Competitive advantage is achieved by operators of major LNG projects through the provision of longterm plant reliability, quality of construction, lowest cost of production and customer service. Since project uncertainty can be said to grow in proportion to size, so for a mega project the uncertainties are significant and processes that identify, assess and contribute to the effective understanding and management of these uncertainties are needed. At OKLNG we set out to create a process that integrated the creation of Value with the management of Risk. The key objective was to integrate the steps of Value Creation and Assurance, Risk Identification, Assessment and Management together using a number of standard value management and risk management processes and tools, but ensuring they worked as one integrated process and not as individual functions. At this time the project is in the pre-sanction phase and is looking primarily to create maximum value to all stakeholders. It is within this environment that OKLNG recognized that a process that integrated Risk and Assurance was going to be difficult to achieve but necessary in order to create and retain value from erosion during the life of the project. The theory states that the basic principle of the Value process is to recognize the project objectives, being the shareholder targets related to CAPEX, Schedule, HSSE (Health, Safety, Security and Environment), etc. The resources necessary to achieve these need efficient management to secure these requirements cost effectively. But, the initial challenge in assurance terms is to land on a universal agreement of what each shareholder considers the objective to be and then translate these requirements into absolute measures. Historically, Project Management normally organizes the Value Management and Risk Management functions as two groups not integrated within the portfolio of the same manager. Thus their integration has been largely dependent on the experience of the personnel and the effectiveness of the relationship between the key functions - being our (H o ) condition. In OKLNG we created a common process for these two functions that defined the working terms between them and applied control processes to ensure there was a management compliance regime monitoring the work - the (H 1 ) condition. The challenge to this process is the fact that Value is not an absolute criterion, but a relative one. Perception of risk levels and potential impacts varies between individuals and tolerance towards differing perceived levels of risk exposure varies between each shareholder organization. In theory the assurance steps should be easy: agree Value requirements / criteria, apply internal processes that enable the project team to achieve these objectives etc. So, at any time during project development the dependent variables can be the project objectives and the independent variables are the varying tolerance each shareholder has towards the risks perceived. However, within just a few weeks the dependent and independent can switch round without a trend being observed. The inter-play between Risk and Assurance is critical to maintain the effectiveness of Project Management. Ordinarily without this integration a significant amount of time would be lost as the interfaces between assurance, project management and risk management reacted to the changed requirements. It is for this reason that the full integration of Risk Management with Value Assurance through common systems and governance that the (H 1 ) condition is more likely to contribute to project success. 3. Defining Value Assurance If you refer to Value Assurance codes of practice no absolutely clear definition readily presents itself

3 To succeed in making real and objective improvements in value it is necessary to have a basis for defining value that is quantifiable in economic terms e.g. IRR, NPV, PWI. In the case of the OKLNG Project, complicating the challenges still further is the fact that the OKLNG value chain includes the Upstream gas suppliers, the Midstream LNG plant and the Downstream Offtakers. Within the Midstream group are a number of major contractors who are responsible for the Engineering, Procurement, Construction, Commissioning and Start Up. It is in the Midstream that the focus of effort for the Risk Based Assurance Process is concentrated, but Upstream and Downstream play an essential part in creating a technically and commercially viable Midstream project. So, in broad terms, Value Assurance is a process that aims at providing project management and owners with qualitative and quantitative assurance and assistance at critical decision points, through a process of, facilitation, independent challenge and review. Value Assurance is particularly important because LNG development projects are extremely capital intensive and represent long term commitments. The key objectives can therefore be summarized as: Improve time to market Reduce CAPEX and OPEX Identify opportunities for value creation Control project performance Suggest possible improvements Solve technical problems Ensure alignment of effort across the venture Create a dynamic mechanism between Risk Management and Value Assurance that allows the interplay between project objectives and risk tolerance within the venture to be managed effectively across the complete value chain. CONTEXT OF AN LNG PROJECT Relative to other major capital projects in the oil & gas industry LNG facilities can be characterized as follows: Large scale (both in construction effort and in sizes of equipment and tankage) Atlantic and Pacific Basin market-based (predominantly) Substantial and multiple risks: e.g. seasonal and long term product price volatility, gas reserves commitments, political, technical, fiscal, etc. Capital investment costs are from $100 millions into several $ billions High tax take along the value chain Long term project and sales/purchase contract life cycles: typically years. In light of the increasing number of LNG liquefaction projects targeting the same market - and here we are concerned with the Atlantic Basin market - mainly the US Gulf and North East Coasts and Europe - particular importance is attached to the competitive situation; such aspects as reliability of delivery to customers, flexibility in case of changes in shipping nominations, quality of product, relationship with feedstock suppliers, low cost of production - and all on a larger scale than most industries where we, at OKLNG in Nigeria are talking of multiple trains totaling approx. 20 million TPA of LNG output. From a broader perspective there are socio-economic benefits too in the form of job creation, community development, trading opportunities for supplies and services, etc. Spin-offs can include adjacent projects for domestic gas supply, power generation and possibly infrastructure development. Given the above, and our project example, there is also the dimension of its place in the overall gas value chain: Exploration Production Gathering and Pipelining Liquefaction (OKLNG Project) Shipping Receiving and Regasification Gas Marketing

4 Thus for the investors - who usually have an interest in more than one component of the value chain - the maximization of value across the whole value chain is an important consideration, relative to the purely LNG liquefaction component which is usually a buy gas - sell LNG model, and when today it is not acceptable for one part of the value chain to subsidize another. Present LNG trade uses long term (15+ years) gas supply and LNG sales contracts where optimization of storage capacity and shipping terminal facilities represent bottlenecks on capacity and flexibility - both having major capital investments associated with them and both not cheaply or quickly expandable. This consideration stems from the batchwise handling of LNG into ships when compared to the continuous flow of feed supply gas and the continuous, yet daily and seasonably variable, demand for gas in the market place. Integration of the shipping component is largely by a dedicated fleet, purpose-built for the project concerned; relatively little spot LNG shipping capacity is available today, yet trends towards it are emerging. This is to be compared with the crude oil transportation industry where tankers are chartered on a per voyage or short-medium term basis from shipowners who have no financial interests in the crude oil production facilities nor the refineries and who are in the business of chartering vessels at the prevailing market rate per voyage. Needless to say, an alignment of purpose throughout the whole LNG value chain is needed to ensure success in any segment, recognizing the different risks and returns applicable. In saying this, it is often considered that the liquefaction plant is the enabler for the full value chain - so characterized because (1) it is often the most significant investment in the total value chain, (2) its capacity, whilst expandable due to the modular train concept, once set becomes the limiting factor for the economics of the overall value chain (since the LNG business is characterized by economies of scale, and certainly when a green field project is contemplated). IMPLICATIONS FOR MANAGING A COMPLEX MEGA PROJECT TO MAXIMIZE VALUE Of particular importance is the relationship between Project Management Systems (PMS) and Value Management Systems (VMS). The PMS aims at helping the Project Team perform activities within schedule, budget and with the required quality, while the VMS aims at helping the Project Team identify every opportunity for value creation while performing these activities. The performance of Value Management activities improves confidence that one stage is sufficiently complete and that conditions are right for progression to the next decision point. For this reason VMS activities need to be planned in accordance with the Project Schedule. In linking them to the project schedule they should also be linked together. An assurance event may provide input to a subsequent assurance activity. The project development stages are: 1. Evaluation (Gate) 2. Concept Selection (Gate) 3. Concept Definition (Gate) 4. Execution 5. Production Between each stage there is a Decision Gate made up of Technical, Business and HSSE criteria which need to be satisfied before the project can proceed. The Front End Loading (FEL) criteria that need to be complied with are: 1. Have we selected the Best Option from an appropriate range of options? 2. Are plans in place to successfully complete the Definition phase? 3. Are plans in place to fully prepare for the Execution phase? 4. Are all Risks identified and mitigation plans agreed? The objectives of Value Management are to: Establish processes which create and retain value for owners Apply appropriate levels of Assurance during project design & execution Apply high quality Decision Making processes consistently Apply Governance through a Risk & Assurance Committee - 4 -

5 Maintain an integration with the changing levels of risk and potential variations to project objectives, primarily influenced by the parties in the value chain during the pre-sanction phases. The Value Management Functions are: Integration of Project Scope and Objectives Statement (PSOS) Execution Plan Resource Plan Risk & Opportunity Plan Value Assurance Plan Development basis assumptions Decision Making Knowledge Management Value Management Processes Define FEL criteria / categories. The tools and techniques of Value Management are: Value Assurance Methods Value Improving Practices Value Tracking Risk Management Decision Making Knowledge Management and Close Out. Value Assurance Methods provide assurance to shareholders and decision makers and assistance to the project at critical decision points (Gates) through a process of support, independent challenge and review of project activities and deliverables. Value Assurance in its formulation phase brings the team together and reviews the purpose, goals, objectives and constraints of the project. Available information is then shared and reviewed construction issues and driving forces for achieving a successful project with the lowest installed cost and highest profitability are captured. The challenge for any project is to deliver these elements in an integrated way as the project reaches the stage of commercial viability. Value Improving Practices increase project value by applying systematic techniques and methods to reduce design excesses, challenge methods and assumptions. Value Tracking to continuously assess the increase to project value being made by the process. Risk Management minimizes the probability and consequences of adverse events and ensures those risks accepted by the project have been allowed adequate contingency in the budget if they were to occur. Decision Making helps decision makers improve decision quality by offering a methodology that links data structuring, evaluation and agreement. Knowledge Management and Close Out helps the development project team to look back and analyze what went well or badly, learning and extrapolating from the process. To obtain the best possible results, the implementation of Value Management methods should begin early on in the pre-development stages of the project during evaluation and concept selection. They should subsequently be used as a continuous improvement mechanism for ensuring maximum cost effectiveness, functionality and appropriate quality. Value Management is often seen as more of an upstream activity in comparison to Risk Management which is probably true for most projects but not for those with similar value chains to OKLNG and demanding such a large financial investment. For this reason value management needed to be progressed together with Risk Management in a complementary way

6 Value Management coordinates and controls the work flow during each project phase ensuring the criteria for meeting shareholder expectations at the next decision gate are fully understood and that the work effort is project managed to ensure adequate emphasis is placed on the key criteria. Professionally they have developed as separate specialisms without an integrating methodology. Value Management integrates the efforts of the Project Team, contractors and the overall venture with those of shareholders to provide a focus on value throughout the organization. The resulting atmosphere encourages innovation, draws on synergy of people working together and results in a better use of resources in fulfilling the Company s objectives. Value is often considered to be the excess of satisfaction of needs over the resources used in achieving that satisfaction. Each stakeholder has its own needs and a different idea of what constitutes value. Value is therefore not objective but subjective. Achieving good value usually means balancing a series of conflicting parameters in order to reach an optimum position. To assist in overcoming these differences the engagement with shareholders is to enable joint participation at Peer Assist meetings where guidance is sought, Peer Reviews of the work underway and Value Assurance Reviews where the work completed in each phase is verified and accepted. A common aspect of these events is that they need to be performed by or with the participation of members external to the project team, usually drawn from experts, partners or third parties. To obtain the best possible results, the implementation of Value Management methods should begin early on in project development. They should be subsequently used as a continuous improvement mechanism for ensuring maximum cost-effectiveness, functionality and appropriate quality. Regarding the area of conventional Risk Management, the process universally followed on projects is to identify and quantify the important risks - on the basis of their impact and frequency - and then produce mitigation plans that are applied to reduce the risks to the lowest possible levels. On the assumption of a full mitigation (as appropriate to each risk) investment and other commitment decisions can be taken in an informed environment, usually enhanced by the benefits of stochastic modeling techniques. The intersection of Risk Management and Value Assurance can be said to be fully at the centre of Value Management, namely: Value Assurance is applied within the Risk Management process to integrate the areas of uncertainty with the project management work program. In this instance each risk in the risk register is coded to a Value Assurance deliverable, event or decision gate criteria for the end of the present phase and following one. In addition, each risk can be assessed for its residual impact and contingency provision can be made in the budget; the mitigation strategy and the application of the mitigation strategy are done properly and done to a high quality - particularly as the risks and mitigations shift in response to changing circumstances from inside the project and outwith. Risk Management is applied to the Value Assurance process in an oversight capacity to capture risks that surface from Peer Assists, Peer Reviews, Value Assurance Reviews, etc

7 Integrated view of the Risk Based Assurance Process PROCESS PRACTICALITIES 1. Guiding Principles of Value Management (VM) Focus on overall business value rather than just technical solutions Align with best practices in the sector Focus on decision checkpoints not by activity completion Ensure project objectives are communicated to the team and a common understanding is created Provide sufficient flexibility for managing different aspects of the project in terms of complexity, costs and scale of investment. 2. Front End Loading It is also relevant to recognize the application of Front End Loading (FEL) criteria which set out the scope needed, usually from an external perspective, to be completed to pass through each decision gate. These criteria serve to focus on the scope to be completed, clarify responsibilities and also to measure remaining uncertainty as further funding is sought to progress towards greater definition and project sanction. Standard checklists are provided by FEL consultants to facilitate this process and they are often asked to provide an independent project evaluation to support the material used to assess the project s readiness to proceed to the next stage. 3. Apply Good Practice and Control - 7 -

8 The process of developing accurate and consistent engineering design involves the adherence to applicable codes of practice, the integration of design data into system design, and the management of changes that internally occur within the design team as well as those emanating externally from outside the project. This discipline, again, contributes to good Value Management. 4. Value Management Programme (Coordination & Control) It should be prepared early in the evaluation phase and updated at the beginning of each phase. It should use Value Management Policy itself and the Project Scope and Objectives Statement as input to ensure that it reflects the specific objectives and characteristics of the project. It should cover: Roles and Responsibilities Identification of key value drivers Selection of appropriate techniques for carrying out VM (Peer Reviews, Peer Assists, technology selection, Value Engineering etc) Resource / team /timetable /budget Integration of Value Management with project activities Key Performance Indicators (KPIs) and other means for measuring value results Training for project team members Identification of VMS areas (Value Assurance, Risk Management etc) to be applied to the project. 5. Value Management Studies The studies should follow a structured job plan with the following stages: Planning Information Analysis Creative Evaluation Reporting Implementation The performance of Value Management studies improves confidence that one stage is sufficiently complete and that conditions are right for progression to the next stage. For this reason Value Management studies need to be planned in accordance with the Project schedule. 6. Value Assurance Reviews All types of assurance events are performed in the interests of the Project. However, Joint Assurance Reviews (JARs) are principally decision maker driven, while Peer Assists and Peer Reviews are more team oriented. The main purpose of the JAR is assuring shareholders and transferring knowledge to the Project Team. Peer Assists and Peer Reviews on the other hand, are mainly aimed at creating learning opportunities for the Project. Joint Assurance Reviews (JARs) are independent reviews examining all the aspects of a project before accessing a decision gate. JARs take a broad view of the project before a decision gate and provide assurance and assistance both to the project team and to the decision makers. On major projects JARs drive the overall Value Assurance process and are performed at the end of each phase - hence the need for an Assurance Plan which defines the timeline and terms of reference for each JAR and supporting event. 7. Risk Based Assurance Process The conventional project management approach is towards cost control and achievement of engineering, procurement and construction schedules - yet this denies the concept of value contribution. Our fundamental proposition is that value can be engineered in to a project and not - 8 -

9 merely identified and captured, but steps deliberately taken to add value to improve overall economic performance alongside cost and schedule imperatives. The following sections enumerate the OKLNG Risk Based Assurance Process model. THE OKLNG CHALLENGE The key attributes of the project are: Build an LNG Liquefaction plant, marine loading facility and offsites, utilities and infrastructure at an undeveloped green field site in Nigeria Process gas and produce LNG at a rate of approx. 20 million TPA for export, including byproducts production and sale Implement a fit-for-purpose world class facility using equipment and systems with wellproven reliable performance, all at a competitive unit cost. Implications for Venture Management follow: To consolidate a business case which has the following structure: 1. Business Proposal 2. Project Scope and Objectives Statement (PSOS) 3. Project Development Plan 4. Project Execution Plan 5. Operations Strategy Plan 6. Procurement Strategy Plan 7. Project Organization Plan 8. Gas Supply and Offtake Plan 9. Risk Register 10. Risk Management Plan 11. Value Management Plan 12. HSSE Plan 13. Joint Assurance report 14. Concept Definition Phase Report To focus the engineering mind it is necessary to address the following: - 9 -

10 Setting the Business Goals (Pre-event) Setting the Business Goals is a communication process that identifies the shareholders requirements and expectations associated with business opportunity / problems and ultimately translate them into project goals, ranked according to their relative importance to the business strategy. This puts the shareholders of the business in alignment with the project team who can deliver the business results. Value Improving Practices Value Improving Practices (VIPs) is an area of the VMS describing processes and activities that should result in improved project outcomes (e.g. cost, operability, schedule, reliability, safety, etc). They are a systematic approach to obtaining optimum value for money, for example, by reducing non-critical scope items, increasing reliability or simplifying processes. VIPs are distinct, focused activities that are generally applied during the design stages of a project. They should be incorporated into the overall planning of design activities. Value Improving Practices comprise: 1. Technology Evaluation 2. Process simplification 3. Energy optimization 4. Waste Minimization and Management 5. Availability / Reliability / Operability 6. Design to Capacity 7. Maintainability 8. Constructability 9. Process Reliability Modeling 10. Codes & Standards 11. Predictive Maintenance 12. Value Engineering 13. Benchmarking. And the Process Steps to achieve the above comprise: Information gathering Creative review Analysis of requirements and the potential options Development of the recommended proposal Present / Report the findings Implementation of the agreed recommendations. Now, in the evolution of the OKLNG project, value enhancing opportunities have arisen during the Front End Engineering and Design (FEED) Phase which challenges the project to: Reduce capital expenditures and improve economics Identify high cost areas and potential significant reduction of the investment and contribution to the Project rate of return Identify and evaluate Value Improvement Practices. Specific opportunities under evaluation are: Reliability optimization - Variable Cost performance - Fixed Cost Performance CAPEX reductions - Reduce scope & specs - Implement design efficiency - Identify risk allocation and scope shifts Decrease rate of expenditure

11 - Cost effective procurement & sub-contracting schedule Increase Revenue stream - Increase LNG Train capacity - Optimize overall process performance. RISK BASED ASSURANCE PROCESS Risk Management Given that Risk Management is the systematic process of identifying, analyzing and managing risks in order to maximize Project value the process can be considered as the formalization of commonly - used Project Management practices and should be carried out routinely within the Development Project s life cycle. Through the correct assessment and quantification of risk the appropriate mitigation strategy can be applied from the Transfer, Take, Terminate or Treat array. The key steps in this management process are: Identify and quantify the risks Increase knowledge about the risks Identify ownership Define and agree mitigation strategy Manage and monitor the mitigation process Be alert for changing circumstances and assumptions. Project Value can be destroyed by unmitigated risk impact and the process should address this possible consequence in the context of probabilistic analysis of the Schedule, Estimate and Project Economics. Integration of Risk and Value It is often considered that Risk and Value should be linked in the early stages only, however, Value Assurance covers the facets of Value Creation and Value Retention in the fight against the intensification of Risk and the erosion of Value. It should be recognized that Value Creation drops quickly away at Sanction and the battle is then on to retain the value that has been generated. OKLNG realized from past projects that the management of Value and Risk needed to be better integrated and responsible to a governing body to ensure the integration of the disciplines. A Risk and Assurance Committee was therefore formed of the Senior Management Team plus discipline professionals. A basket of criteria that met shareholders requirements was needed and we also identified the criteria that shareholders would likely need to achieve FID (Final Investment Decision), being the start of the Execution phase. For these criteria we assessed the barriers to achieving them and included the potential risk barriers in the Risk Register. The OKLNG Risk Based Assurance Process Recapping; the requirements of a Risk Based Assurance Process are: Create Value Assurance that supports the requirements of the Venture s governance model Integrate the Risk Management, Value Assurance, Venture & Technical Assurance Processes (which includes Quality Assurance) Ensure the expectations of shareholders, the Board and the Senior Management Team are understood, communicated and duly achieved Establish a governance structure: in OKLNG, the Risk and Assurance Committee Enable the project to achieve the overall objectives in a safe, reliable and cost effective way. The continuous cycle that is followed has the following steps: 1. Establish the Assurance Framework and programme aligned to the Project Schedule 2. Progress the project definition - Venture & Technical 3. Monitor the environment around and within the project definition 4. Capture risks and develop opportunities

12 5. Report to the Risk & Assurance Committee (Risk Report + Assurance Report) 6. Revisit the Value Assurance process for alignment to increase / decrease the degree of Risk and Assurance work. To put the Risk Based Assurance Process into operation: 1. Establish the Audit Plan Project-wide (H o ) 2. Establish Governance - here the Risk and Assurance Committee (H 1 ) 3. Implement Risk Process Project-wide (H o ) 4. Produce and issue the Assurance Plan appropriate to the present Phase of the Project (H o ) 5. Set up Terms of Reference for Expert Committees (H 1 ) 6. Monitor the Value Improving Practices Processes at engineering contractors offices (H 1 ) 7. Integrate the above processes with the contractors (H 1 ). Current Structure of the Risk Based Assurance Process: - Processes being applied are: 1. Risk Management 2. Key Decisions (Decision Analysis / Decision Quality) 3. Knowledge Management 4. Benchmarking 5. Governance - all subject to Peer Review & Peer Assist to frame the appropriate processes. - Scope of Assurance Area is: 1. Joint Assurance Reviews (JARs) 2. Peer Assists 3. Peer Reviews 4. Expert Committees 5. Sponsor Audits 6. Internal Audits 7. VIP exercises - all applied to the processes within the Venture s overall business context. - Controls: 1. Assurance Plan (Scope of the Assurance Area) 2. Audit Plan (for OKLNG & Contractors) 3. Document Matrix (Project Management Procedures) 4. Policies & Procedures 5. Risk Register. - Compliance: 1. Risk and Assurance Committee (formed from the Senior Management Team) 2. Shareholders Audit Committee. Operationalizing the above To get a sense of how the above processes and procedures work in practice, discrete activities have to be managed jointly, for example: Integration of Risk Management and Assurance Integrated Action Tracking applied for OKLNG Benchmarking of other project risks Integration of engineering contractors into the Value Assurance Process Implementation of Best Practices and Lessons Learned from other sources Quantitative Risk Analysis - input to contingency plans OKLNG compliance with external Risk Management exigencies (e.g. Sarbanes-Oxley)

13 Trend Analysis of Project Risks through Assurance Activities and the recognition of residual impacts on the Venture s economic viability. It is useful to recognize the different levels of Technical and Venture Assurance as determined by the intervention situation: Level 1: Project structure / continuous Improvement Level 2: Performance improvement methods Level 3: Independent expert support Level 4: Engagement of shareholders - Expert Committees. And the intervention levels of Decision Making: Level 1: Shareholder decisions Level 2: Project / Venture decisions (Board) Level 3: Group decisions (General Managers) Level 4: Contractor decisions. With regards to the Decision-Making Process three phases were followed: 1. Structuring Phase to: 1.1 Identify or clarify the problem or opportunity 1.2 Assess the business situation 1.3 Create alternatives 1.4 Develop a decision model. 2. Evaluation Phase to: 2.1 Discover what is important 2.2 Quantify the risk and return 2.3 Determine value of new information. 3. Agreement Phase to: 3.1 Decide on course of action 3.2 Allocate appropriate resources 3.3 Implement course of action. Finally, our Risk Based Assurance Process acknowledges that the capture of Lessons Learned & formal Close Out procedures are not only associated with quality processes but provide a useful forensic attribute should this be required under the governance remit. In this regard, we are seeking to: ensure that each project takes maximum advantage of all lessons learned onto other projects, such as expansion projects, gather all learning the Project Team has accumulated during the project, and from past projects of a similar nature, so as to leverage learning and facilitate quality accreditation. CONCLUSIONS Recognizing: Different perceptions and attitudes towards Risk and Value between shareholders as well as amongst the management team, hence the challenge of aligning and prioritizing project objectives for all stakeholders The diligence necessary to successfully and simultaneously implement a Risk and an Assurance process to be able to understand, communicate and manage the value proposition represented by the project opportunity That comparison to other projects will inevitably occur such that clarity of derivation and justification of actions will need to be documented

14 - we propose that a Risk Based Assurance Process is not only appropriate but that it is superior in terms of ultimately maximizing value. With the above review and argumentation we suggest rejection of H 0 in favor of H 1, thereby hypothesizing that the addition of an appropriate Risk Based Assurance Process is necessary, in addition to effective project management, in order to achieve maximum value from a given project