IBP1322_12 SUCCESSFUL INTEGRATION OF FAST TRACK PROJECTS INTO TURNAROUNDS J. Patrick Williams1, Ramon C.

Loureiro2

Copyright 2012, Brazilian Petroleum, Gas and Biofuels Institute - IBP

This Technical Paper was prepared for presentation at the Rio Oil & Gas Expo and Conference 2012, held between September, 1720, 2012, in Rio de Janeiro. This Technical Paper was selected for presentation by the Technical Committee of the event according to the information contained in the final paper submitted by the author(s). The organizers are not supposed to translate or correct the submitted papers. The material as it is presented, does not necessarily represent Brazilian Petroleum, Gas and Biofuels Institute opinion, or that of its Members or Representatives. Authors consent to the publication of this Technical Paper in the Rio Oil & Gas Expo and Conference 2012 Proceedings.

Abstract
Fast track projects can provide quick wins and competitive advantage. However, in most cases the implementation of these projects requires a shutdown for installing the necessary tie-ins or integration into an upcoming turnaround (TA). Depending on the nature of the project and complexity of the TA, the integration can be seamless or result in cost or duration overruns and safety incidents. The risk of such overruns and safety incidents increases with the amount of project work to be integrated into the operations, maintenance and inspection schedules to be executed during the TA. The risk further increases with TA size and other factors. If not planned and scheduled properly and in a timely fashion, capital projects, in particular fast track projects trying to take advantage of an upcoming TA, can severely impact both TA performance, and the safety and reliability of the facility until the next opportunity for eliminating the defects introduced during the TA. Successful TAs are those delivered in a safe, on time, on budget manner, and with the quality standards needed for a leak-free start-up and a safe and reliable operation over the next run cycle. This paper discusses the key elements that are required to minimize the TA risks derived from the inclusion of fast track projects and how to establish the cut off criteria to either cancel or defer the project, or delay the TA in order to balance TA scope freeze and the case for compelling economics.

1. Introduction
A turnaround (TA) is an event where one or more units or the entire facility is shut down for maintenance, inspection and capital project work that cannot or could not be executed on the run. TAs vary widely in duration, cost and complexity. TA performance is critical to the financial outcome of a facility. A successful TA will deliver the work scope on schedule, on budget and with the quality standards needed for a leak-free start-up and a safe and reliable operation over the next run cycle. However, there are significant risks associated with TA execution. The main risks associated with TAs are of two types: those deriving from financial and company image issues as the result of large cost and duration overruns, and those derived from safety and environmental incidents. The level of risk typically increases with the size of the event but it is affected by other factors including TA governance effectiveness, the competency level of the TA team/contractors, quality of the overall TA planning effort and the amount of project and/or first time work included in the scope. Project integration is often a challenge, in particular for fast track projects trying to take advantage of an upcoming TA. The most effective way to mitigate late project TA risk is through early establishment of TA process deliverables which incorporate project engineering milestones with clear rules on cut off criteria. Regret being to either cancel/defer the project or delay the TA. Absent this, there is a great probability of not achieving detailed planning and/or integration of the operations, maintenance, inspection, and project schedules into a single master schedule. Therefore, many TA organizations would reject projects that are identified beyond the scope freeze date. On the other hand, compelling economics of certain last minute projects tempt the organizations to take the risk of inserting them after the scope freeze when management focuses only on the upside of the project (i.e., the benefits) but neglect the impact on TA performance. Finding the optimum balance between TA performance and capturing last minute opportunities is difficult and requires proper project definition and a detailed data-driven process to take the emotions out of the decision process.

______________________________ 1 Master of Science, Chemical Engineer KBC ADVANCED TECHNOLOGIES, INC. 2 Master of Science, Chemical Engineer KBC ADVANCED TECHNOLOGIES, INC.

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2. Potential for Turnaround Cost Overrun

It is common knowledge in the TA community that the main contributors to TA risk, in particular cost overruns, are TA size (i.e., total labor hours) and the level of preparedness (TA excellence) for the event. The level of TA excellence can be increased by ensuring that the following key elements are in place: An effective TA Governance Model in place (i.e., the right organization, well defined TA philosophy, clear roles and responsibilities for the TA teams, meeting the TA planning milestone deliverables with quality work and a strictly enforced scope freeze date with a painful approval process for any additional work orders) An experienced TA planning team and master scheduler Timely integration of detailed schedules from all disciplines (operations, maintenance, inspection, and projects) coupled with a comprehensive contracting strategy Experienced and qualified supervision and effective schedule, cost, and execution controls The TA organizations analyzed over the last 15 years have been classified into three levels of excellence, namely, Leader, Average, and Lagger (KBC, 2012a). Those in the Leader category excel in all of the above TA elements and typically achieve the lowest expected values for cost overruns. The average performer has most of the elements in place but either applies them inconsistently across the disciplines or with some difficulties in adhering to the TA planning milestone deliverables. Laggers are usually deficient in most, if not all, elements and usually incur the highest cost overruns. Figure 1 indicates the impact of TA excellence on the potential for cost overruns for different TA sizes (KBC, 2012a). The upper and lower bounds of the bands representing leading, average, and lagging TA excellence levels (solid and dashed lines in Figure 1, respectively) correspond to the P90 and P10 values of the distribution (i.e., 90% and 10% of the population in the distribution did not exceed the value in the curve. In other words, 10% performed better than the lower bound and 10% worse than the upper bound). Table 1 indicates the TA sizes used in the construction of Figure 1, namely Extra Small (XS), Small (S), Medium (M), Large (L) and Extra Large (XL). The vertical arrows in Figure 1 denote the potential for cost overrun for a Leader, Average and Lagger performer undergoing a large TA.

Figure 1. Potential for TA Cost Overrun Table 1. Turnaround Sizes Used in Figure 1 Turnaround Size Classification Extra Small (XS) Small (S) Medium (M) Large (L) Extra Large (XL) Total Labor Hours <35,000 35,000-85,000 85,000-200,000 200,000-500,000 >500,000

Rio Oil & Gas Expo and Conference 2012 Adding scope to a TA after the freeze date can impact the TA planning and scheduling process by introducing uncertainties that can lead to cost and duration overruns. The level of perturbation introduced by the project in the TA planning process grows as the oil-out date approaches. A particular concern with last minute projects is that is very difficult to tie all lose ends to make it a seamless execution with the TA scope. Start-up procedures of the new project may change the planned sequences, need for utilities (e.g., availability of high pressure steam to test the new turbine), or reveal a key element left behind (e.g., need for additional tankage, rundown piping, or miscellaneous materials). Also, the operation of the new project may negatively impact other units, reducing its profitability. Here is where the plant benefits from the use of an independent and qualified Owners Technical Advisor (OTA) (Williams, et. al., 2010) to help with the cold eyes review and technical assistance to determine the optimum path forward: include in the upcoming TA, postpone, or cancel. Many projects have been conceived to address a particular issue, however, the economics may no longer hold true. The impartial recommendation from a trusted OTA can also help mitigating the uncomforting task of cancelling someones pet project that has been under development for years and now is the opportunity to implement it, when the problem it was trying to solve had already been solved via operational changes.

3. Case Scenario
An opportunity for increased distillates recovery (6-8%) through the application of proprietary Deep-Cut Technology was identified at a European refinery. The opportunity was worth US$39.7 MM per annum in increased diesel production. In order to capture this benefit, the refinery needed to extend the top of the vacuum distillation tower to incorporate a new fractionation section and pump-around draw pan, three new exchangers, new improved thermal efficiency bundles for two exchangers, one new pair of pumps, impeller modifications for two existing pumps, three waste heat steam generators, and 61 instrument items, with a total of 168 tie ins. The project was very attractive as it had a payback time of less than six months. However, there was a big challenge. 3.1. The Challenge The challenge was how to leverage the upcoming TA (just 15 weeks away) to capture the opportunity without severely impacting TA performance. As a top TA performer, the refinery had a well-established TA philosophy that was intolerant to any additional TA downtime, post-TA outages or slowdowns. The TA team had done an excellent job planning the event and had just completed the validation of the critical path and detail plans. Therefore, this project was unwelcomed by the TA team as they were approaching the point in the TA planning phase where introducing any new scope would most certainly extend the TA duration. The refiner had analyzed the traditional options which included: Postponing the project until the next TA, five years from the upcoming TA Postponing the upcoming TA to allow for conventional project implementation Continuing the conventional engineering/design development and take an unscheduled shutdown for tie-in installation when ready to implement Cancelling the project 3.2. The Solution An unconventional solution leveraging on a fast track phased approach using the OTA agreement and the previously developed Petro-SIMTM (KBC, 2012b) model for the refinery was proposed, analyzed in detail and launched. Phase 1 included using the existing Petro-SIM flowsheet to quickly test a variety of cases in a rigorous manner (rigorous simulation provides greater accuracy than the traditionally used linear programming techniques). Energy efficiency analyses and improvement assessments were conducted using SuperTargetTM (KBC, 2012c) to validate the initial estimates and further optimizing the process solution for improved benefits. The analyses included the development of accurate yield and energy credits and debits for the base case and what-if scenarios that were also analyzed in terms of design and procurement while the impact on the TA planning and execution was being assessed in parallel, in particular the evaluation of the tower section fabricators. A trusted fabricator was identified and who could deliver the tower section complete with internals before the oil out date. Figure 2 shows the new prefabricated section of the vacuum tower being lifted in place.

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Figure 2. Lifting the New Top Section of the Vacuum Tower Simulations and Phase 1 specifications and detailed planning were completed in four weeks. The results from Phase 1 reduced the project scope to be executed during the TA window to 64 tie-ins, the tower extension, five new lines and 12 new instruments, with the Phase 2 scope to be implemented as post-TA activities with the plant on-line. Although the additional TA work was found unlikely to affect the critical path or any of the sub-critical paths, it still added complexity and unknowns to the TA. Figure 3 shows the preparations for the vacuum tower.

Figure 3. Preparations in the Existing Vacuum Tower Therefore, the cost-risk-benefit (CRB) analysis included the expected value for cost overruns for the base case TA and considering the additional scope. It was found that the benefits from the implementation outweighed the risk derived from the delays in procurement, fabrication or installation of Phase 1 items by a factor of 9.4:1. Contingency plans were developed to further mitigate the risk. The CRB analysis methodology is described in the next section, and it involved all refinery stakeholders, vessel fabricator, and TA contractors working together as one team and creating ownership of the project. 3.3. Results The TA execution was on time and within the original budget overrun expectations, i.e., less than 5% cost overrun due to discovery work not associated with the project. All project work scheduled for the TA was completed successfully, and there was no need for a pit stop to correct design or construction defects. Therefore, the economics exceeded expectations. Figure 4 shows the completed vacuum tower project at the end of the TA. The rest of the improvements were successfully implemented on the run according to the post-TA work schedule.

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Figure 4. Completed Vacuum Tower Project

4. The Cost-Risk-Benefit Approach

The CRB approach determines the extent of risk reduction, expressed in annualized monetary units that could be gained upon implementing a work scope activity in the TA vs. deferring it to a later opportunity. The CRB concept is illustrated using the case study described in the previous section, and considering that the alternative to implementing the project in the upcoming TA, 15 weeks away, was during a 14-day oil-to-oil pit stop that could be scheduled a year after the TA. Relevant data for the analysis are the following: Potential benefit from increased production: US$39.7 MM/yr in increased diesel production. Lost profit opportunity if deferred to pit stop: One (1) year @ US$39.7 MM/yr = US$39.7 MM. Probability of capturing the benefits, if implemented, 0.98. The original TA size was estimated at 320,000 total hours, and therefore considered a large event. The expected value for the overrun was 5-6% of the latest estimate of US$42.0MM, or US$2.1 MM, consistent with the last TAs planned by the same team. The project work to be executed during the TA added 9,800 work hours to the TA scope and US$4.3 MM in cost. Although the number of hours did not change the TA size category, it was perceived to jeopardize the level of TA excellence, increasing the expected overrun to 15%, or US$6.3 MM, which corresponds to the P90 line of the leader category in Figure 1. Note that should the percentage of added project work have been greater, then the expected overrun would also have been larger. If implemented during the TA, it may be possible that a 10 day shutdown would be needed to correct any defects introduced during the design or construction. However, the likelihood was deemed low (0.02). The first step of the CRB analysis consists in evaluating the scenario where the project is deferred. In this case, the benefits derived from the project would not be captured until the project is implemented. In lieu of more accurate TA data, Figure 1 can be used to estimate the expected value of the overrun based on the size of the TA and the level of excellence of the TA organization. Table 2 indicates how the data were organized to estimate the expected value if the project is deferred. Table 2. Expected Risk for Project Deferred to Shutdown in One Year Potential Gains (+) and Losses (-) (MMUS$) +39.7 -2.1 -6.0 Likelihood (Probability) 0.00 1.00 1.00 Expected Value (MMUS$) 0.0 -2.1 -6.0 -8.1

Line A B C D=B+C

Item Increased production TA overrun expected value Pit stop production loss Total risk deferring (RDeferred)

The second step is used to evaluate the scenario when the project is inserted into the upcoming TA schedule. In this case, the benefits derived from the project would be captured over the time difference between the start-up from 5

Rio Oil & Gas Expo and Conference 2012 the TA until the next opportunity to implement (in absence of a plan estimate one year). Again, Figure 1 can assist in the determination of the new expected value of the cost overrun. Table 3 indicates how the data were organized to estimate the expected value if the project scope is added to the upcoming TA. Table 3. Expected Risk for Project Implemented in the Upcoming Turnaround Potential Gains (+) and Losses (-) (MMUS$) +39.7 -6.3 -4.3 Likelihood (Probability) 0.98 1.00 0.02 Expected Value (MMUS$) +38.9 -6.3 -0.1 +32.5

Line Item E Increased production F TA overrun expected value G Pit stop to correct any defects H=E+F+G Total risk implementing in TA (RTA)

Once that both competing cases have been thoroughly evaluated, the CRB ratio can be obtained from the data in Tables 2 and 3 and the incremental cost of the TA (CTA) according to Equation 1. Table 4 indicates the risk assessment summary and calculated CRB ratio for the project.

CRB =

RDeferred RTA CTA

Table 3. Risk Assessment Summary

(1)

Line RTA (Line H from Table 2) RDeferred (Line D from Table 1) I=H-D J K=I/J

Item Total risk implementing Total risk deferring Risk mitigation Cost when done in the turnaround Cost-Risk-Benefit Ratio

Expected Value (MMUS$) +32.5 -8.1 +40.6 4.3 9.4

Once the CRB ratio is established, the project can compete for resources with other discretionary maintenance items having similar CRB ratios. A CRB ratio of 1.0 represents the breakeven point (i.e., for each dollar invested, the expected risk reduction is one dollar). Typically, the threshold value for inclusion in the TA is between 2.0 and 3.0, with higher values used to accommodate budget cuts.

5. Key Learnings
Fast tracking projects with the proper planning and scheduling support can minimize the impact to TA risk. However, it requires the following key elements in place: Long-term relationships with trusted advisors having the right simulation tools for quickly and accurately assessing yield improvements (e.g., Petro-SIMTM), pinch analysis and energy improvements (e.g., SuperTargetTM) and the experience in process design and TA optimization needed for this type of quick response projects, with no latitude for errors reduces financial risk by providing realistic credits and debits from both yield energy perspectives and the seamless integration with TA activities. A world class structured TA organization and work process including the right governance model, a well defined TA philosophy, an experienced TA team with clear roles and responsibilities and TA planning milestone deliverables with strategic reviews at key milestones. Allowance for expedited funding, purchasing and contracting this could be a difficult hurdle in those cost-focused companies and those subject to lengthily protocols for acquisitions Good team working capabilities to provide accurate information required for the analyses required 6

Rio Oil & Gas Expo and Conference 2012 Use of a site-wide risk-based work selection matrix along with pre-defined criteria for acceptance/rejection of discretionary items (including opportunity projects) based on CRB criteria Promotes data-driven decisions, otherwise influenced by emotions.

6. References
KBC ADVANCED TECHNOLOGIES, INC., proprietary information that includes experience from 150+ turnaround optimization studies worldwide, 2012a KBC ADVANCED TECHNOLOGIES, INC., Petro-SIMTM is a trademark of KBC Advanced Technologies plc, and it is registered in various territories, 2012b KBC ADVANCED TECHNOLOGIES, INC., SuperTargetTM is a trademark of KBC Advanced Technologies plc, and it is registered in various territories, 2012c LOUREIRO, R. C. Fast track project execution process. In: CENPES-KBC Workshop No.1., Rio de Janeiro, Brazil, 6 December 2010. WILLIAMS, J. P., et al., In: Reducing Future Maintenance Costs by Developing O&M Strategies, Rio de Janeiro, Brazil, Rio Oil & Gas 2010, IBP1427_10, 15 September 2010.