Oil&Gas Projects

Assessment, management and development

ORGANIZATIONAL STUCTURE AND HUMAN RESOURCES

 

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Basically, the main factor of successful development projects, it is not corny it sounds, is the formation of an effective team. "Cadres decide everything", and it is not we come up with, but confirm. We decided separately to fix our attention on it, because we believe that in spite of the simple truth of the above statement, in practice, the importance of this issue neglected. The main reason is stereotyped approaches to the selection of personnel in the project team, by analogy with recruitment in other departments of the Company.
 
For a better understanding of the issue, apparently, it is necessary to mention the potential approaches in the implementation of project activities. It is obvious that the organizational structure based on a multidisciplinary team provided by experts in the key areas of project development, allows in a relatively short period of time to implement the most effective iterative, multivariate approach in project activities.
 
The project team should be a separate business unit of the Company. The implementation of the project activity, for example, on the basis of the existing structure, organized as divisions, departments and other disciplinary areas is not effective because it does not enable active iterative process and multiplicity of approaches. And this - the critical part of the whole project activities. And here's why. The main problem is that the work of each business unit, usually organized on the principle of conveyor production. Simplistically, for oil and gas project, it looks like this: geologists, finished their work on the construction of geological models, transfer it to reservoir engineers, reservoir engineers, having completed its part of the pass it up the surface infrastructure professionals , those - economists. These are individual structural units, with all the bureaucratic system attributes. At the same time, as a rule, after the calculation of the economic part is missing (or seriously impaired) to return again to the geologists and reservoir engineers for adjustments and consideration of alternatives, since they are already involved in other works.

 

Example.
Sometimes, when the time for "error correction" or optimization of key economic indicators is small, comes to the ridiculous - economists willful decision to adjust the "not their" part, so that the project played beautiful figures. How is it done? - Very simple. "And I will take a minute and I will increase by 20% the production profile evenly over the year (within the range of uncertainty in terms of production, can not allow), and capital expenditures increased by only 10%, using effect of scale. Also will remove the lion's share of capital investments at a later date" Economy optimized, high NPV and IRR achieved. But the economist does not take into account that reserves, production levels and capital expenditures unrelated simple linear relationship. The obtained parameters of the project have nothing to do with reality. Further totals go to the top management.
 

Such errors are usually protected by corporate procedures for preliminary examination of design decisions, etc. This example is not representative, but we met in practice.

 

Why is this happening? First - because geologists, reservoir engineers, surface infrastructure specialists, economists - they are separate structural units with all its vertically integrated system attributes and bureaucratic procedures. At the same time, as a rule, during the calculation of the economic part is missing (or seriously impaired) to return again to the geologists and reservoir engineers for adjustments and consideration of alternatives, since they are already involved in other works, or that is also common, there is no possibility of direct communication between services and departments in principle.


In this regard, initially, when an organization works, seeks to "knock out" all in a way that did not have to redo it. The question of the search for optimal technical and economic solutions require multiple runs "to and from" the life cycle of the project and taking into account the sensitivity of the design solutions to all the uncertainties and risks, which are at the initial design stage very wide.

  

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Of course, we cited the example of an extreme case, and it is possible to implement hybrid schemes where the project team created from the delegated by each department professionals who 100% of their time engaged in a specific live project and come back only after its completion or transition to the stage where their services are no longer required. Nevertheless, in practice, often turns out that such an expert delegated "sits on two chairs". He has a dual system of subordination (the head of its structural units and project manager), its material motivation depend on the results of its structural unit, and not the project team. He was constantly distracted from the project work on "important matters" of its structural unit. Naturally, there is a conflict of interest and, usually, it is permitted not in favor of the project manager.


Debating on this topic can be found even a lot of different reasons for the ineffectiveness of the project team work within the traditional organizational structure of the Company. "The organizational structure should be established under the task, rather than adapt to the existing structure"  Therefore, our fundamental position in the organization of project work is that "the project should be handled by a separate structural unit with a single chain of command, the individual objectives and related material incentives on the basis of approval of key performance indicators (KPI)"  This approach is most effective, but it also has disadvantages, which, however, can neutralize the expense of corporate procedures of the organization of project activities.

 
Since any project initially have only the expenditure side, the Company are aiming to do "little blood" - to minimize the costs of project activities and maximize the use of existing human resources without increasing the total number of staff. With regard to the realities of modern life is normal. At the initial stage, in principle, is not required to form a substantial staff of the project team. It is enough to give a small group of people function examination, control and strategic planning in key areas of the project, and the work itself (modeling studies, project and design documentation) to perform outsourced. With regard to oil and gas projects in key areas of concern: "Subsurface part" (geology, drilling, production), "Surface infrastructure", "Economy"  However, it is very important to these areas to find the most qualified employees. In this regard, "the procedure of the Company to attract the best staff in the project team should have a special status".  Because ultimately on the results of this small team depends on the efficiency of investment in the hundreds of millions, even billions of dollars and the future of the Company.
 

As an example, the figure shows one possible functional structure of the project team on the stages of "Preappraise" and "Appraise".
 

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This structure assumes sole responsibility for each key area and a single responsible person for the project as a whole. In this case, the main work, depending on the complexity and the required level of competence, may be performed both the project team and outsourcing.
 
Outsourcing is one of the main tools of the project phases "Preappraise" and "Appraise"  Yes, in large companies, the necessary resources for the project are often drawn from corporate scientific and technical centers, but for medium and small companies, outsourcing services and project management competencies required for the directions - is an effective and efficient way to implement the project.

 
What else is usually not taken into account in the planning of the project? Any solutions proposed by the project team, must be "unrisked" through technical, technological and economic expertise. Yes, no one is immune from mistakes and "blurring eyes".  Expert support to the project activity can be provided as a part of routine work (expert consultants are used on a routine basis when required), and within the Company standards of the project works (before justification of financial requests / memorandum, strategy, key project decisions, moving from stage to stage ). The experts can serve as the Company's employees from different departments (applicable for large companies), and separately hired experts - true for medium and small companies.

 

Once again we want to emphasize that the appointed heads of the key areas of the project should have a really good competencies in their area of responsibility. In other words, the leaders of the key areas should not only have the relevant experience, but also able to work "with their hands".  Often such "prospective" vacancies are appointed by the "generals" who are accustomed to be based on a sufficiently serious organizational structure, which "do everything" at the click of your fingers. As a result of such appointments instead of real work intensively work on the justification of the new organizational structure "under him", inflated organizational structure. Unfortunately, for many of the "effective" managers to make changes in the organizational structure is one of the primary ways to show their own effectiveness.

 

The figure shows the approximate organizational structure of the project team on the stages "Appraise" and "Select". Numbers and some positions, depending on the needs and characteristics of the project could be changed. It should be noted that part of the core competencies necessary to form immediately in the structure of the operating organization (subsoil user), and the distribution of authorities between the subsoil user and the project team must be clearly distinguished.

 

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Typically, the separation of authority between the project team and the the subsoil user is that "on stages "Appraise" and "Select" operating activities is the responsibility of the subsoil user and the design and work on the strategy for the implementation of the project is responsibility of the project team". 


The organization of of the project works may also be organized on the basis of the subsoil user. Ie provide a single source of design and operations. There are even options. At first glance, this is the best option. Simply put - the project strategy and its implementation are on the same group of persons. But in this case there are difficulties with the provision of efficient iterative-optimization work due to the fact that the typical structure of the subsoil user, as a rule, are not sharpened by such issues. In addition, part of the operating activity begins to prevail over the strategic objectives of the project. The project team "digs" in the routine operations. In addition, the project team formed within the structure of the subsoil user, might be tempted to adopt is not optimal for the investor decisions. This can be done for the sake of own relief operations, both at the current stage of the project, and in the future.


Precisely the above listed reasons, the international practice differentiate the activities of the operating organization and project teams. At the same time, "common conflict of interest between the project team and the subsoil user shall be maintained".

 

Raising the issue of the conflict of interests of different structures of the Company and the project team within the organization of the project works, it should be noted that this is one of the most important factors influencing on speed and success of the projects. On the one hand, a healthy conflict of interest should always be maintained and  serve the objective to find the most optimal solutions, on the other hand, it should not become a hindrance to the implementation of the project.

 

Where did have a problem of conflict of interest and why it is designated by us as one of the most important? The fact that the project team is created from zero to the task of developing a new project and takes root in the existing organizational structure of the Company. What if this happens? There is a new unit. Existing structure, it is perceived as a alien element, since it is assumed that the core of the team will be formed by key managers on key functional areas, and all the necessary competence additionally be borrowed from other relevant departments. Ie the existing structure necessary to find additional resources to support projects, despite the fact that projects are not the main area of responsibility of the existing structure. This fact can not produce a favorable attitude of the system (the existing structure) to a newly created division. Of course, the first reaction of the system - to take away, move away, to discredit "alien" element. In practice, this translates as a hidden and in open confrontation between the heads of key departments and the project team. May not always and not everywhere is going on, but systemic factor specificity of the organization of the project works contributes to this.

 

If we consider the situation on the other hand, large-scale projects are an essential part of the development strategy of the Company and there is no way to eliminate the need to involve specialized units of the Company to implement projects. The company must use all its technical and expert potential to ensure the quality of the implementation of its development strategy. And this, in turn, requires the active involvement of all key departments of the Company in the project, at least at the level of technical expertise.

 

There are additional factors which enhances development of a conflict of interest, not associated with the added attraction of the project competence from the key structural divisions of the Company. It is about the intersection of the main objectives of the project and the tasks of a structural unit.


Example.

As part of the project is always a question of reserves quality (reservoir properties, _ contours of of deposits).. Correspondingly, the task of the project team - to determine the amount of recoverable reserves. And it's not just to confirm the presence of oil / gas for the project in the reservoir, but also reaching the lowest-cost-effective production rate. For such tasks are scheduled for drilling exploration wells  . with a specific set of studies or plans to implement pilot projects. As a rule, any exploration works, including the drilling of exploratory wells, are the responsibility of the exploration division. It turns out that the project team requires coordination of necessity of drilling an exploratory well with the exploration devision, including the allocation of the budget. And here is a conflict of interest. The task of exploration division (and rightly so) focuses solely on growth of reserves - and this, for a second, the Company's capitalization. The issue of reserves quality is not a priority. The project's objective - to confirm that these reserves can be profitably produced.In such a situation it is very difficult or almost impossible to reconcile the allocation of budget for the drilling of an exploration well (focussed on project objectives) at the exploration department level. Typically, these questions are submitted for a higher level of decision-making.

 

Situations of conflict of interest happens quite frequently and their solution lies in the plane of the system changes the organizational process. As a means of ensuring the implementation of these changes can be considered the development and adoption of corporate procedures and standards for the implementation of project activities, the introduction of matrices separation of responsibilities between the project team, structural subdivisions, the operating organization and other methods.

 

In summary, "organization of the project works requires a comprehensive approach, ranging from the creation of the project team and finishing with structural and procedural changes in the activities of the Company". 

12.02.2015