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The Effects of the Global Economyon Capital Project Execution

Global Construction Summit

Construction Project Management

Best Practice 2010

- A Springboard for the Next Decade24 & 25 June 2010

Marriott Rive Gauche Hotel, Paris


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The Effects of the

Global EconomyOn Capital Project Execution

Stephen Cabano

Pathfinder, LLCJune 24, 2010

Marriott Rive Gauche Hotel, Paris


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Introduction

Stephen L. Cabano, President, Pathfinder LLC

Presentation perspective will be from both the

Owners and Contractors Project Management views

of the oil and gas process industry as of late2009/early 2010

Including discussion of recent 2010 industry observations


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Industry Perspective


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Owners

International financial and political uncertainty is

constraining worldwide capital project activity.

Many Owners are cautiously optimistic regardingindustry growth. Many have cash but are waiting out

the storm.

Activity still at reasonable levels in Asia/Pacific, slow

but reasonable in South America, slow in Europe and

slow-to-dismal in North America (but improving).


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Owners

Most industry components are poised to move ahead

once the following occurs:

Future financial and taxation policies are clearly established Money borrowing, insurance and interest rates loosen and

stabilize at reasonable levels

Government intervention points are established & stabilize

Starting to see planning activity for major projectswith plans for late 20112012 execution starts.


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Contractors

Slowdown of capital spending has made engineering

and construction contractors more available.

Contractors have worked off their 2007 - 2008backlogs and are now hungry for work. In many

areas, however, they have substantially downsized.

Contractors have minimal funds to invest in training

or developing resources.


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Contractors

Historically, downturns such as those experienced in

the past few years typically create competition and

new companies. Downturns also historically breed innovation on how

to execute more efficiently.


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Industry (Overall)

The rollercoaster ride of the past 10 years has not

helped the public view of engineering and

construction as a reliable career path for newengineers.

Still a major demographic issue for engineering and

construction resources

The 3 Ds still prevail (Dirty, Dangerous, Divorce).


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Industry (Recovery)

Fear is that all industries will show activity

simultaneously, causing massive surge in project

activity around the world (20112012). Natural disaster rebuilds will cause drain on

worldwide construction labor as well (Haiti, Chile,

China, etc.).

International Economic Stimulus money is trickling

down to the field (but slowly).


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Industry (Recovery)

Oil prices hovering around $75+/ bbl US.

Worldwide electricity demand is increasing as

economy starts to rebound. Alternative energy continues to expand.

Manufacturing starting to show slow growth.

Auto industry starting to recover slowly (GM hasshown its first profitable quarter in 3 years and has

repaid a major portion of its bailout).


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Industry (Impact)

Recent increase in the number and size of claims.

Owners are more cost conscious and risk averse.

Shift to emerging markets (Asia/Pacific).

National oil companies taking a larger role in oil

industry/geopolitical influences.

Focus is on upstream rather than downstream work inestablished markets.


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Industry (Impact)

Potential for numerous international infrastructure

projects.

Criteria for borrowing money is much more stringent,more risk averse (higher level of due diligence).

Environmental/Sustainability impacts continue to

force change .


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Industry

Is economic stability a reality?

May go through a number of cycles over the next 10

years.


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Capital Project

Influences


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Capital Project Influences

Across-the-board cost cutting by Owners(reductions in staff, mandated reduction

in support services, mandatory reduction

in engineering cost, etc.) may result in

actual overall project cost increases.

Reshuffling of industry resources over

past 5 years (people are learning new

corporate processes/practices, ownerresources moving to contractors and vice

versa).


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Addressing the Issues


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Aggressive companies are spending capital todaywhile the resources are available and pricing is

attractive (several major oil companies).

Companies are still moving forward with capitalspending but looking for every opportunity to save/cut

costs.


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Companies need to be cautious not to shortchangeoperations and maintenance by minimizing capital

cost.

Many Owners are choosing the lowest cost approachrather than the highest quality.

This may result in long-term operational issues as

well as a deterioration of the quality of resources in

the industry.


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Owner purchasing departments driven towards lowestcost and minimizing risk through Terms &

Conditions.

Owners are attempting to drive for better projectoutcomes with fewer low-cost resources.


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Recommendations


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Recommendations

1. Create an industry/worldwide engineering andconstruction public relations campaign.

Develop an international initiative to attract high

quality people back into the engineering and

construction industry


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Recommendations

2. Apply your Project Delivery Process efficiently andeffectively and do not circumvent key critical

decisions.

Use the proven Work Processes to assure high

quality projects are selected and executed

efficiently


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Recommendations

3. Value quality Front End Loading (FEL).

Trust the benefits of early planning and full

stakeholder involvement


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Recommendations

4. Plan deviations with the same rigor as the Front EndLoading.

Use the same early planning and stakeholder

buy-in on project changes


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Recommendations

5. Consider Project Management as a competitiveadvantage.

Invest in your Project Managers; do not

shortcut Project Management development


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Recommendations

6. Set realistic, achievable goals and objectives.

Do not kid yourself that this project will be

different if the execution strategy is the same


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Recommendations

7. Realism is needed on behalf of Owners andContractors.

Restrain from gauging on either side of the

table during the initial stages of the

recovery period (dont be greedy)


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Recommendations

8. Thoroughly plan and schedule the work.

Ensure that FEL work is complete before

proceeding into Execution phase.

100/100 rule (100% FEL complete and 100%

Project Execution Planning complete beforeapproval for Execution)


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Recommendations

9. Use the most qualified Contractors available andappropriate contracting platforms.

Rely on your Contractor selection processes

and select the most qualified Contractor for

the job. Insist on the best people.

Beware of untested Joint Ventures.


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Recommendations

10. Consider a Senior Advisory Council structure.

Have most experienced resources act as your

Project Risk Managers who wear the

Black Hat and seek out project problems

and risks. These individuals need to havethe proper level of paranoia


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Recommendations

Remember: People build projects

Find the best people for the task;

people make the difference!


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Question & Answer


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The Effects of the Global EconomyC i l j i

Contact Information

Stephen Cabano, President

Pathfinder, LLC

[email protected]

www.pathfinderinc.com

Corporate Office

11 Allison Drive

Cherry Hill, NJ 08003(856) 424 - 7100

Houston Calgary Mexico City

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5 Steve Cabano