'HUPP' - the New Paradigm to Maximize Cost Reduction on Oil Sands and Oil & Gas Projects

CALGARY, CANADA, November 21, 2016 (Newswire.com) - ​An important tool in the tool-set of transformational processes to achieve innovation and cost reduction, 'HUPP' - stands for Holistic Upfront Project Planning with focus on front-end loading in project planning. This tool forces the project planning and execution team to cast away the myopic 'fit for purpose' vision to a broader field of view at the project outset - thereby revealing embedded project risks and encouraging early risk management planning. The HUPP approach looks for synergies within the overall corporate ecosystem to maximize cost-effectiveness and facilitate smart decision-making.

1. WHAT IS 'HUPP'?

The HUPP review should be completed upfront for all the phases and all the processes involved in the project - i.e., the unified business - in order to identify cost reduction opportunities that can be implemented safely without compromising the quality on the project and also to land on the best project execution strategy.

Parth Mukherjee, Expert Principal, CEPEX Center for Excellence in Project Execution

The current low-for-longer oil price scenario, which is expected to continue for the foreseeable future, is crimping revenue and hence availability of cash for new projects of the oil sands and oil & gas companies. As is well known, oil sands projects (unconventional) require higher capex (capital expenditure) as compared to conventional oil projects. As well, the gas prices are also subsisting at very low levels. Lowering capex has, therefore, become imperative, more than ever, for the oil sands and oil & gas companies to achieve economic viability of their new projects.

HUPP requires the oil companies to transition away from a narrow focus on solutions/strategy to a wide-angle view through holistic planning process right from the initial planning stage. The companies would need to evolve beyond reviewing just one phase or one element of the project at a given time to find cost reduction opportunities over the entire project life cycle and beyond.

“The HUPP review should be completed upfront for all the phases and all the processes involved in the project – i.e., the unified business – in order to identify cost reduction opportunities that can be implemented safely without compromising the quality on the project and also to land on the best project execution strategy,” said Parth Mukherjee, Expert Principal CEPEX.

Under today’s oil price situation, the oil companies cannot afford to take a phase-wise, or, piecemeal or a disjointed view and approach to plan their new projects – greenfield or brownfield, added Mukherjee.

2. BUSINESS DRIVER FOR HUPP

From 2005 until Q4 of 2014, oil prices generally stayed above $75-$80 per barrel with only occasional spikes and drops, and the oil sands projects along with other unconventional oil resources enjoyed healthy IRRs (internal rate of return).

“During this period, the oil companies implemented their projects based on their respective project implementation models; and, depending upon their organizational project management maturity, each company attempted at finding cost efficiencies with differing levels of depth and efficiency," said Anirudh Kumar, Principal CEPEX.

Cost reduction exercises of the companies were generally performed:

•           Either late in the game; or,

•           In piecemeal manner, looking at one element or phase at a given time; or,

•           Overlooking sequential connectivity of project; or,

•           Looking at different elements of the project separately.

This was the not the most efficient way to identify cost efficiencies. As the oil price plunged in Q4 of 2014, suddenly the oil companies’ ability to fund their new projects got severely constrained, IRRs got mauled, added Kumar.

New projects got stalled or deferred or cancelled. However, new projects are also a necessity from the point of view of exploiting the company’s recoverable reserves thereby enhancing wealth maximization of the company and returns to the shareholders.

“It is clear that the less than efficient ways hitherto used, as mentioned above, to achieve cost reductions on new projects are not going to be adequate. HUPP addresses the said inadequacies and maximizes the potential of cost reduction on new projects”, said Kumar.  

3. “HUPP” – THE NEW PARADIGM

In HUPP process, the review of the entire project planning and implementation begins with a diagnostic approach using holistic techniques – it means that the entire project is reviewed looking at all the phases, processes and policies combined, as opposed to focusing only on its specific elements or components. It encompasses a front-to-back and back-to-front review, including modularization plan, construction work package plan at a high level.

HUPP is a transformational process through which the owner company would make certain that their project is running at its full potential of cost reductions and efficiencies, as opposed to simply having strong areas and weak areas. HUPP seeks to facilitate conscious decisions about the projects’ development, its future course and future needs as well. This approach motivates the project teams to make positive changes, points out Kumar.

HUPP provides the platform from which the project teams of the companies see the ‘big picture’ and make the best decisions. This approach isn’t simply “out of the box”, but instead it is based on the belief that the “box” needs to be removed altogether. In this sense, HUPP allows project teams to develop entirely new mindsets and insights about their projects and their roles within them, emphasizes Mukherjee.

Application of HUPP doesn’t involve only a few of an organization’s project team, but will instead involve the entire execution team – personnel drawn from the various groups involved in the project at various phases in the project life-cycle. After all, HUPP is predicated on the fact that the entire project and its ‘business’ must be considered in totality to achieve success, and this is only possible if the entire project management and the execution team is functioning on the same page.

HUPP also helps in identifying major risks to a project and therefore in developing necessary mitigation plans. The important by-product of the mitigation planning upfront is the estimation of cost and/or time impacts on the project due to the risks. This ties in well with Risk Management - and supporting the risk reviews at an early stage of the project.

4. SUMMARY

HUPP is a transformational approach that is going to be fundamental to achieving the objectives that the oil sands, oil & gas (both conventional & unconventional) and petrochemicals companies are looking for in the context of planning and implementation of new projects – greenfield or brownfield. To achieve the right project objectives, a proper foundation must be laid, and arguably, HUPP approach is the way to go.

Oil sands, oil and gas and petrochemical companies that are keen about implementing HUPP in their companies in order to realize full potential of cost reductions and efficiencies, their first step should be to contact CEPEX, which is proficient in applying this approach.

CEPEX is a boutique management consultancy that exclusively focuses on achieving Cost Reduction, Efficiency Enhancement in the Oil Sands, Oil & Gas and Petrochemical sectors through partnering with Owner & EPC/M companies. HUPP is one of the tools in its toolbox.

CEPEX works with the project teams of owner companies – only on short duration assignment basis - in a manner that will allow them to get the most out of their project objectives of cost reductions and execution strategy and have it perform at its highest efficiency.

About The Center for Excellence in Project Execution

Based in Calgary, Canada, the Center for Excellence in Project Execution is a boutique management consultancy serving oil sands, oil & gas sectors worldwide providing niche consulting services covering cost reduction, project management, special projects and continuous improvement. You can visit us on the world wide web at www.projectexecution.consulting for more information.

Parth Mukherjee, P.Eng, PMP, Expert Principal, Center for Excellence in Project Execution, Calgary, Canada

1-403-397-8469 / [email protected]

Anirudh Kumar, P.Eng, Principal, Project & Construction Specialist, Center for Excellence in Project Execution

1-403-397-8765  / [email protected]

Source: CEPEX Center for Excellence in Project Execution