SM Your Capital Optimized : Project Delivery Execution Strategy Capacity Operations KBR SM The Economic Approach to Project Development and Execution that Delivers Maximum Project Returns
KBR SM Approach to Capital Efficiency Achieve Better Technical and Economic SM Value with KBR s Today clients face the challenges of tighter product margins, increasing environmental standards and higher investment evaluation thresholds. Capital expenditure decisions are made in an environment of rising costs, increasing uncertainty of budget and schedule coupled with reduced internal capabilities. Traditional Approach Reference Design with built in margins Cost Reductions (VE,VIPs, CII, IPA) How to Develop a project the traditional way: Start with a reference design and subject the design to cost reduction efforts. The updated design still contains margin not required to meet project objectives. KBR has concluded that the traditional approach to reducing cost will no longer result in projects that are economically viable. With KBR s innovative new work process, clients work collaboratively with KBR to weigh the economic impacts of technical execution and commercial elements to configure a project that achieves the highest economic return on capital. Rather than use traditional cost reduction techniques, s structured process quantitatively evaluates additions to a predefined, minimized design and execution strategy. This drives critical decisions early in the project to assure maximum realization of benefits. The result is a project configured to be the lowest CAPEX, highest Value (NPV) project scope and execution possible for the specified requirements. Why Spend More. Capital Cost Improved Capital Cost (Still includes margin) Now, Develop a project the smart way! Start with an operational, minimized design without sparing or other Assessment Elements that might be required to meet project objectives. Assessment Elements are evaluated and added only if they meet the value parameters, thus achieving Maximum Capital Efficiency. Savings not captured using the traditional way Warranties / Guarantees Modularization Global Procurement Layout / Access Sparing Maximum Capital Efficiency SM O&M Optimization Standards & Specs Construction Planning Filter Execution Strategy Labor Sourcing Design Margins Commercial Strategy Assessment Elements KBR Minimized Design KBR Approach 2 3
KBR SM Process - Define the Philosophy - Create the Value Pre-FEED - Implement the Concept - Protect the Value - Develop KSS Solution FEED - Deliver the Concept - Deliver the Value - Deliver the KSS Solution EPC KBR Solution Configuration KBR Change Management KSS Base; Minimized Design KSS Solution Defined KSS Solution Implemented Define business Priorities value and criteria (KSS Filter) KBR Workshops KSS Change Management Filter Define and align on KSS base design Subject matter experts Consider/Debate Assessment Elements Is value increased? Yes management approval? Yes Defined KBR Solution - Project changes - Model reviews - Deliverable reviews - Execution Plans - Commercial Is value increased? Yes Delivered KBR solution No No No Confirm expanded discipline level Assessment Elements Revise recommendations Revise changes KSS Assessment Elements Client Assessment Elements A Smart process to secure highest value investment KBR Why KBR? KBR (KSS) methodology uses, as a starting point, a single-train base plant containing minimized specifications, spares or no margins called the Base. The Base is located on an idealized site, configured using the clients intended process technologies, and is capable of safely producing on-spec product from the intended feedstock. KSS front-loads the project decision making using a series of collaborative KSS workshops to confirm project objectives and decision criteria. This methodology guides the team in confirming required project functionality as they challenge and configure the project scope, execution, design basis, intended plant operations, site-specific requirements and commercial limitations to produce the least investment required to safely meet the project objectives. The proprietary KSS Filter customized with the client s project economic and reliability data confirms the economics of all required and optional additions to the Base. The project team then continues to use the KSS Filter throughout the project life cycle during all project design and deliverable reviews to ensure that maximum Capital Efficiency is realized the Solution. Early definition of project scope and execution strategy Allows value creation to be the single objective arbiter of project scope and execution approach decisions Improves demonstration of benefits and impacts of project scope and execution options Drives significant and more robust project planning and scope confirmation before project design work begins Addresses negative impacts on project execution resulting from late changes Facilitates Client-Contractor project alignment and two-way transparency for more impactful decisions. Enables a more disciplined and detailed change management process starting in FEL-1 Phase Promotes Client-Contractor understanding of the Solution from which to measure changes and eliminate scope growth. Aids client in understanding best placement of contractual risk elements 4 5
KBR SM Cost Influence Curve Partnering to Define a Better Project Earlier Major influence Rapidly decreasing influence Low influence KBR s methodology guides the Client and KBR to jointly configure projects to a higher standard of Capital Efficiency. Starting with the Base configured with the Client s unique business and economic requirements, the project-specific Filter is produced. This filter is uniquely configured for each project and contains seven categories of Assessment Elements. These elements are analyzed and refined in a series of formal workshops and then recommended to Client decision makers to achieve higher levels of economic performance. Better Capital Efficiency Assessment Elements include Design Basis, ISBL / OSBL Processing Scope, Equipment and Materials Specifications, Plot Plan & Equipment Arrangements, Project Execution, Physical Site Characteristics, and Commercial. These elements are systematically reviewed by subject matter expert teams resulting in aligned design and execution philosophies and specifications. The resulting recommendations provide the means for achieving a safe, reliable facility marked by higher long-term profitability than ever before The Solution. I N F L U E N C E Conceptual Phase FEL-1 Earlier FEL Definition More Certain Economics Feasibility Phase FEL-2 Definition Phase FEL-3 Influence curve without KSS Influence curve with KSS Earlier EPC Definition Lower Risk Engineering, Procurement, Construction Phase (EPC) Cost without KSS Cost with KSS The KSS approach builds on a minimized design to drive decisions earlier in the project life cycle and give the team tools and processes that assure capital optimization, aligning all project objectives. Moving the curve to the left delivers earlier project definition. Once a capitally optimized Solution is configured and approved, the KSS Change Management process limits change to only that which adds value. The methodology delivers a capitally optimized project far better than traditional methods. COST Assessment Element Categories Design Basis Commercial Physical Site Characteristics Processing Scope Equipment and Materials Specifications Plot Plan & Equipment Arrangements Project Execution Plant equipment and system design margins NPV validated process, support utilities, and infrastructure equipment sparing for safe, economic, reliable facility operations Highest NPV application of corporate facility and industry standards and specifications Lowest CAPEX configuration consistent with Operations & Maintenance requirements Strategies that drive improved levels of FEED definition to improve confidence in the outcome of EPC Phase Constraints to design and execution Strategies to efficiently allocate design and execution risk 6 7
Developing the KBR SM Base Reference Design Start (Design with Inherent Margin) KBR Base Start 8 How it was done? - Equipment sparing stripped out - Platforming removed - Operations and maintenance features eliminated Local motor starters removed Control valve bypasses removed Local instrumentation (gauges) removed Unessential equipment isolation valves removed - Plot optimized to generate shortest pipe runs (located equipment under racks, revisited access ways) - Margin (equipment, pipe diameter, electrical load, etc.) right sized to meet (not exceed) design basis The savings in equipment and material quantities are magnified by the savings in the cost of not having to install them. The Smart spend Base design Total Installed Cost Savings 15 20% - Equipment 18 22% - Piping 15 20% - Civil 25 30% - Steel 30 35% - Instrumentation 3 5% - Electrical 5 10% - Paint / Insulation 10 20% - Direct Field Labor Cost 18 22% - Indirect Field Cost 18 22% - Total non-field cost (freight, engineering, contingency, other) 15 20% - Overall improved Productivity 10 15% Once the Base scope is defined, additions to base are subjected to quantitative analysis before adding to scope. 9
KBR SM Results The process produces measurable results that translate to value for your critical project. Our goal is to plan a project the smart way by spending valuable capital in ways that produce the best results and meet all your project goals. 10 KSS Assessment Elements + Design Basis + Processing Scope + Equipment and Materials Specifications + Plot Plan & Equipment Arrangements + Project Execution + Physical Site Characteristics + Commercial KSS ASSESSMENT SUMMARY KSS number Lead discipline Category Assessment Element Recommendation KSS-007 Engineering - Civil / Structural Processing Scope - Maintainability No permanent access ladders or maintenance platforms for towers, columns, or reactors - use scaffolding for maintenance access. No permanent access ladders or maintenance platforms for the Front End Deethanizer Column. Install temporary scaffolding for maintenance access. KBR Filter Analysis Recommendation description Add permanent access ladder and maintenance platforms to the upper section only of the Front End Deethanizer Column. Move the column closer to pipe rack and extend the structure to provide access to lower two (2) column maintenance platforms. Add 100 ft. access ladder with safety cage with connections from upper pipe rack level to upper column maintenance platforms Add four (4) maintenance platforms galvanized steel with handrails Erect temporary scaffolding every 5 years for planned maintenance shutdown. CAPEX CAPEX to add 100 ft. access ladder with safety cage with connections to two (2) upper platforms - $9,000 materials + $6,000 labor = $15,000. Assume installation cost to install on the ground while vessel is being dressed out. CAPEX increase to add four (4) maintenance platforms galvanized steel with handrails = $40,000 materials + $18,000 labor = $58,000. CAPEX increase to add pipe rack extension walkways to the column on two (2) lower levels - $30,000 materials + $15,000 labor = $45,000. Total CAPEX increase = $118,000 OPEX Non-Fuel OPEX to secure subcontract to install and remove 150 ft. of scaffolding every 5 years for planned maintenance = $17,000. Average Non-Fuel OPEX per year for scaffolding = $3,400 Plant availability No impact expected Operating Risk & Flexibility No access to column during operations complete reliance on instrumentation at base of column or in control room. EPC critical path schedule No impact expected Environmental performance No impact expected Commissioning, Start-Up, & No impact expected Ramp-Up NPV NPV Model indicates that if CAPEX changes are less than $6.1 million per $1 million per year OPEX, then is economic. 6.1 to 1 ratio, therefore for OPEX increase of $3,400, can invest only $20,700 CAPEX to be NPV neutral. CAPEX increase = $118,000, therefore is not economic as incremental NPV is negative to add back lower level platforms. KSS ASSESSMENT SUMMARY KSS number Lead discipline Category Assessment Element Recommendation KSS-010 Engineering - Process Processing Scope - Permanent vs. Temporary Equipment Single 100 TPH auxiliary boiler with no additional installed capacity 220 TPH auxiliary boiler not justified; plant design keeps single 100 TPH auxiliary boiler; makeup needed start-up and planned maintenance capacity with temporary boilers. KBR Filter Analysis Recommendation description O&M request 220 TPH permanent auxiliary boiler, instead of Base design of 100 TPH. Maximum steam demand = 220 Tons/hr (TPH) steam. Trip case steam demand = 100 TPH steam with variable superheat. Steady State steam demand = 65 TPH. Medium or intermediate package natural circulation tube-type boilers rated at 600 psig. Process requires 30% of design case duty in the process under steadystate conditions. Ramp-up rate from 30% to full capacity = 10 minutes. Process upset conditions (trip case) require steam above steady state conditions, but below the design case. Variations in superheat are acceptable into the overall steam balance. Planned maintenance shutdown for the plant is every 5 years. CAPEX To estimate the CAPEX for different size boilers, apply Seven-Tenths Rule for unit capacity versus total installed cost (TIC). Cost of unit B = Cost of unit A (capacity unit B/capacity unit A) 0.7 CAPEX for a 100 TPH boiler = $3.2 million x 2.8 installation factor = $9.0 million. CAPEX for a 220 TPH boiler = $9.0 million x (220/100)0.7 = $15.6 million. CAPEX decrease for moving from a 220 TPH boiler to a 100 TPH boiler = $6.6 million. OPEX OPEX reduction for moving from a 220 TPH boiler to a 100 TPH boiler = $5,000/yr. OPEX increase for bringing in and removing 120 TPH of temporary boiler capacity to support a plant maintenance turnaround (60 day duration) every 5 years = 4 x 38 TPH temporary truckable boilers = $576,000 rental + $184,000 shipping = $760,000 or $152,000/yr. OPEX increase = $152,000 - $5,000 = $147,000/yr. Plant availability No impact expected Operating Risk & Flexibility Less turndown under steady-state conditions for the smaller boiler, therefore better efficiency. EPC critical path schedule No impact expected Environmental performance No impact expected Commissioning, Start-Up, & No impact expected Ramp-Up NPV The NPV model indicates that $75 million CAPEX = $80 million/yr OPEX or $0.9 million CAPEX for a reduction of $1.0 million/yr. OPEX. Up to $0.9 million CAPEX could be invested for every $1.0 million/yr reduction in OPEX and remain economic. The additional CAPEX of 6.6 million to get the larger boiler does not equate to enough OPEX savings ($147,000). Therefore the project stays with the base design of a 100 TPH auxiliary boiler. 11
SM We Deliver. KBR works alongside clients worldwide to deliver any project, any time, any place making us a leader in the engineering, construction and services industries. KBR, Inc. is a global technology, engineering, procurement and construction company serving the hydrocarbons and government services industries, employing over 25,000 people worldwide with customers in more than 70 countries and operations in 40 countries. We are proud to work with our customers across the globe to provide technology, value-added consulting services and integrated EPC skills to ensure consistent project delivery with predictable results. Defined Solutions Delivered KBR Headquarters 601 Jefferson Street Houston, Texas 77002, USA +1 713 753-2000 www.kbr.com K16001 2015 KBR. All Rights Reserved.