Value-Based Management Systems
Accelerating the Deployment
of Technology to Business
Opportunities
Kevin Kimber –
ChevronTexaco
David Matheson SmartOrg
© ChevronTexaco 2004
ChevronTexaco ranks among the world’s largest
global energy companies
Global Business – Global Technology
• 180 countries
• 11.9 billion BOE oil and gas reserves
• 53,000 employees
• 2.6 million BOE daily net production
• US $8.5 Billion capital
• RRR of 114% in 2002
ChevonTexaco
Headquarters
Exploration & Production
Refining
Chemicals
Power
Technology
4th largest publicly traded integrated oil in the world
based on reserves and production
2
Technological advancement and integration are
key to future ChevronTexaco opportunities…
• Heavy oil production and upgrading
• Deepwater production systems
• Global gas supply and markets
• Zero-incident / zero-impact operations
• Energy systems and fuels of the future
3
Heavy Oil – A Huge Resource but a Real
Challenge
• Heavy oil is very thick and viscous making
it difficult to produce from underground
formations and requiring greater
processing to refined products
Technology plays a key role in
Commercialization of Heavy Oil
Reserves
• Steamflooding has added $
billions in value through
increased recovery
• Upgrading has added $ millions
in increased product value
• CT spends about $30 million per
year on R&D in this area
Steamflooding
Production (MBOPD)
• Costs more to produce
• Sells for less
Upgrading
400
COGEN operational
350
300,000 BOPD
300
Field discovered 1941
250
200
Steamflood
start up
1st Production
1 Billion
bbls
150
100
Steamflood
50
Primary
0
52
55
58
61
64
67
70
73
76
79
82
85
88
Production History of Duri Steamflood
91
94
97
4
Role of Portfolio Optimization Process & Tools
for Heavy Oil Technology
Like many organizations, we faced
significant challenges…
• Business needs for technology were not being met in a timely
fashion
• Corporate growth objectives demanding more for less
• Technologists keeping projects alive too long
• Inconsistent project evaluations
• Not enough project failures
• Difficulty comparing projects of different types
• Limitations of thumbs up / down approach to project prioritization
5
CT Heavy Oil responded by implementing
a value-based management process.
After: a value-based management process
Project
Evaluations
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Peer & Expert
Review
Portfolio
Decisions
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
Before: a roll-up event
Project
Justifications
Portfolio
Decisions
• Business
cases
• Subjective
Factors
6
Templates provided a standard basis for
evaluation and comparison.
After: a value-based management process
Project
Evaluations
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Peer & Expert
Review
Portfolio
Decisions
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
We found we could address 40 projects with just
three templates:
• Improvements to oil production efficiency
• Improvements to upgrading processes
• Generic
Oil Production Profile
300
BBL Oil/Day Per Pattern
250
200
150
100
50
0
2000
2005
2010
2015
2020
Year
Base Case
2025
2030
2035
Basis for consistent and comparable assessments
of technical risk and commercial contribution
Technology Case
7
Explicitly managing project uncertainty
helps teams drive the upside.
After: a value-based management process
Project
Evaluations
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Peer & Expert
Review
Portfolio
Decisions
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
Project Value Given Technical Success
NPV of Commercial Contribution - Project Cost ($million)
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
40
60
100
120
140
Period 2 Annual Deployments
75
Tech Incremental Peak Production
1
Base Production Decay
Tech Incremental Non-Fuel Cost
Product Value
Period 1 Annual Deployments
Deployment Delay
Period 2 Deploy Duration
Tech CAPEX
Period 1 Duration
Base Peak Production
Base Time to Peak
Base Duration at Peak
Base Initial Steam Injection Rate
180
200
220
240
800
4
2
5
-0.1
-0.02
-0.18
-0.4
16
26
25
200
0.5 2
1
2
0.007 0.0015
1 2
138 138
0 0
0 0
760 760
Base SOR
0 0
Base Non-fuel Cost
0 0
Base CAPEX
0 0
Cost of Fuel
160
750
Period 3 Deploy Duration
Helped team move away
from concerns about capital
cost of new technology and
focus on acceleration of
deployment and maximizing
peak production
80
Period 3 Annual Deployments50
1 2.2
Base Case = 81.84
Combined uncertainty
8
A transparent process helped address the
“garbage-in, garbage-out” problem.
After: a value-based management process
Project
Evaluations
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Peer & Expert
Review
Portfolio
Decisions
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
• Historically this was one of the most
challenging issues
• Process and tools key to overcoming
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
Probability of Technical Success
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Commercial Value Giv en Technical Success
Ra nge of Uncerta inty ($million)
0.80
-100
Dow nhole Steam
Prof ile Control
Project
1
Well Gauging
Project
2
Steam
Distribution
Project
3
Remote Sensing
Project
4
Heat
Management
Project
5
Dow nhole Steam Prof
ile - New 6
Wells
Project
2D
Project 7NMR
CA
Project 8 SH
Cold 9
Flow
Project
Reservoir Opportunity
Identification
Project
10
Steam
Inj Well
Project
11BP
ProjectHOSGD
12
Perf ormance
Prediction
Project
13
Improve Hydrocoking
Process
Project
14
LSTS
Project 15
High Mobility Project
Ratio Waterf
lood
16
ProjectCatalyst
17
PEX
ProjectV A18
Sulf ur &Project
Metals Removal
19
Thin
Sand Thermal
Project
20
Bio-Upgrading
Project
21
Improving Computational
Capability
Project
22
Heavy
Oil Chemistry
Project
23
Shearing
Project
24
0
100
200
300
400
500
600
CA SH
Project
1
Sulf ur & Metals Removal
Project 2
Heavy Oil Chemistry
Project 3
Cold
Flow
Project
4
V A PEX
Project
5
Reservoir Opportunity Identif
ication
Project 6
HOSGD
Project 7
High Mobility Ratio Waterf
lood
Project
8
Well Gauging
Project 9
Improve Hydrocoking Process
Project 10
Heat Management
Project 11
Bio-Upgrading
Project 12
Steam Distribution
Project 13
Steam Inj Project
Well BP
14
Remote Sensing
Project 15
Catalyst
Project 16
Dow nhole Steam Prof ile - New
Wells
Project
17
Thin Sand Thermal
Project 18
2D
NMR
Project 19
Dow nhole Steam Prof ileProject
Control
20
Perf ormance Prediction
Project 21
LSTS
Project 22
Shearing
Project 23
Improving Computational Capability
Project Comparison Tools
9
Using value as the primary decision criteria helps
people make and accept decisions.
After: a value-based management process
Peer & Expert
Review
Portfolio
Decisions
1.0
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
0.9
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Bread & Butter
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
Pearls
Innovation Screen
0.8
Probability of Technical Success
Project
Evaluations
Dow nhole S
0.7
Well Gaugi
Steam Dist
Remote Sen
0.6
Dow nhole H
Seat Manag
2D NMR
CA SH
0.5
Steam Inj
Perf ormanc
0.4
0.3
Improve Hy
LSTS
High Mobil
0.2
1100
Thin Sand Bio-Upgrad
Catalyst
0.1
Cumulative Portfolio Value (NPV $ million)
1000
CFO Chart
Thin Sand
Shearing
CALSTS
SH
900
HOSGD
Cold Flow
Reservoir
Bio-Upgrad
Improving
0.0 Improving
Shearing
0
50
100
White Elephants
Sulf urV&A M
PEX
150
Heavy Oil
200
250
300
350
Oysters
400
Ex pe cte d Comme rcia l Contribution (NPV Give n Te chnica l Succe ss $million)
800
Sulf ur & M
Performanc
Steam Inj
Catalyst
Improve
Hy
VHeavy
APEX Oil
High Mobil
2D NMR
HOSGD
700
600
500
400
300
Reservoir
Cold Flow
Portfolio Evaluation Tools
Remote Sen
Well Gaugi
200
Heat Manag
100
Dow nhole S
Steam Dist
0 Dow nhole S
0
5
10
15
20
25
30
35
Cumula tive Portfolio Cost (NPV $million)
10
Evidence-based uncertainty tracking gives
improved visibility to project changes.
After: a value-based management process
Project
Evaluations
• Specify & quantify
uncertainty
• Clear standards
• Give teams real
direction
Peer & Expert
Review
Portfolio
Decisions
• Transparency
• Credibility and
Comparability
• Value-based
• Solid information
• Strategic
Alignment
Uncertainty
Tracking
• Baseline
assessments
• Updates based
on evidence
Current Project Value (Expected NPV $million)
300
Improved
250
200
CA SH
Capturing Basis of Assessment
150
100
Well Gaugi
Reservoir
Cold Flow
HOSGD
50
Steam Dist
Heat Manag
Remote Sen
Steam Inj
High
Mobil Dow nhole S
Improve Hy
PEX
SulfVurA&
M
2D NMR
Dowormanc
nhole
S
Perf
Catalyst
0 LSTS
Bio-Upgrad
Thin
Sand
Heavy
Oil
Shearing
Improving
0
50
100
Worsened
150
200
Baseline Project Va lue (Expected NPV $million)
250
300
Value Tracking
11
The result: acceleration of technology to
business opportunity.
2003
2004
Improvement
New ideas
screened
22
35
60%
Projects
initiated
6
9
50%
Projects
Deployed
1
2
100%
Projects
Terminated
3
6
100%
12
Acceleration is worth tens of millions.
Illustrative Scenario:
• Stopping one project a year earlier than we
otherwise would, saves the avoided project cost,
but more importantly…
— Allows funding & resources to accelerate
another project or initiate a new one
• Annual value of this scenario:
— $10 million or 30% of annual budget
Targeted improvement in business impact over next
3 years is 100%
13
Summary
Goal was to develop a process & tools to:
• Ensure technology development is aligned with business
strategy & intersects opportunity
• Accelerate development & deployment of technology
• Optimize technology portfolio value
Benefits of a Portfolio Mgt Process for Heavy Oil Technology
• Consistent & comparable project evaluations
• Clear commercial benefits & deployment schedules
• Earlier project “kills”
• Accelerated initiation & deployment of projects
• Transparent, value-based portfolio decisions
• Greater portfolio value
14
For more information…
To contact the authors:
• Kevin Kimber: [email protected]
• David Matheson: [email protected]
Value-Based Management Systems
15