While preparing a talk for the SPE Calgary Section on the Role of the Peer Reviewer looking at Unconventional Field Development Plans and Complex Well Designs, I was reflecting on how poorly prepared I had been for my first encounters with Peer Reviews and Joint Venture Technical Committee Meetings.
So, how can we provide mid-career professionals with skills that will help them effectively review emerging opportunities, especially, Unconventional projects involving risk and value spreads that are far greater than those to which they are accustomed?
The Society of Fire Protection Engineers1 provides a nice definition of a Peer Review as:
- The evaluation of the conceptual and technical soundness of a design by individuals qualified … to judge the worthiness of a design, or to assess … its likelihood of achieving the intended objectives and the anticipated outcomes.
- A tool to help a stakeholder make better decisions.
So, Peer Reviews are an integral part of both the quality management and decision making processes shown here between design and execution:
In our industry, objectives of most Peer Reviews are to:
- Judge the reasonableness and appropriateness of the available data set, planning assumptions and uncertainty assessments; forward plans, forecast, etc.; as well as the risk and value assessments.
- Assess the likelihood of achieving the anticipated outcomes within the scheduled targets.
- Improve the quality of decisions, especially for projects receiving a conditional approval or partial recycle.
- Identify possible opportunities to add value (upside) and/or mitigate risks (downside).
- Provide a safe haven to discuss hard issues or potential concerns, especially over schedule, budgets, or forecasts.
While some operators rely on Joint Venture Technical Committee Meetings to achieve these objectives, this may not necessarily achieve the desired outcomes. Technical Committee feedback may be biased by:
- Non-operator Business Strategy or Finances.
- Inter-company Gaming Strategies.
- The experience and competence of the non-operators representatives, and
- A reluctance of the Project Team to raise concerns in front of the Partners.
Therefore, a truly independent Peer Review Team is, generally, the best solution. Participants need to be carefully selected well ahead of the review process. Nominees should be selected based on:
- Training and experience in the key disciplines, including Decision Analysis.
- Prior exposure to projects of a similar scale and to the peer review process itself.
- Diversity of thinking, experiences, gender, age and soft skills.
- Independence from competition with the Project (for resources) or with key players (for career advancement, etc.).
The Review Team Leader or key specialists should be selected based on the 5 or 6 Key Strategic Issues to be reviewed at each Stage Gate as shown below:
At least, two Peer Reviews are recommended for both Field Development and Rehabilitation Planning:
- During the Select Phase (Stage 2) to ensure enough alternatives are considered; and
- During the Define Phase (PMP Stage 3), prior to FID.
However, many OPCOs use Peer Reviews to aid Decision Making at every stage gate.
The role of the trusted Advisors2 is to ask open-ended questions and to encourage Project Team to recognize that:
- Value Creation depends on acquiring an appropriate data set and investing enough time and effort in looking at alternate concepts, methodologies and options.
- The Uncertainty Management Plan and Valuation Ranges must address a broad range of uncertainties and possible outcomes, including the Operator’s likely future responses.
- Some Risk Mitigation and Opportunity Realization measures can (or should) be deferred. There is value in making modest incremental pre-investments to attain a flexible (living) field development plan that anticipates significant changes over the field life.
- Value creation (and our credibility) depend on capturing the entire P10 – P90 range of:
- Likely start-up dates;
- Production and Sales forecasts over the first 5 years, including downtime provisions;
- CAPEX, including contingency expenditures to maintain the schedule; and
- Competitive factors, social aspects and geopolitical events that affect the commodity and labour markets, as well as product prices.
- The perceptive introvert, pessimist, or cynic may be voicing legitimate concerns over the feasibility of meeting the stated objectives and outcomes.
Nevertheless, a disproportionate percentage of Major Capital Projects have under-performed3! So, why do so many Reviews fail to identify the project teams’ natural cognitive biases and inability to recognize the range of possible outcomes?
I believe this reflects an ongoing mid-career development deficiency in providing technical specialists, trained as analysts and/or problem solvers, with the soft skills necessary to be effective Advisors. As a result, many reviewers shy away from asking difficult questions; or from providing constructive criticism based on their initial impressions, because their ‘sniff tests’ cannot be backed-up with detailed analysis.
I have also observed Opportunity or Assess Stage Reviews (Stage Gate 1-2) on Stranded or Unconventional Gas Development Opportunities focus too heavily on modest deficiencies or unresolved tactical issues to the point where the perceived risks out-striped the potential value. The conservatism (or cynicism) of “seasoned professionals” can easily scare-off those controlling the funding, resulting in Contingent Resources remaining stranded for many years.
In SPE 88513, Vo et al5 discuss how Saudi Aramco’s – Southern Area Producing Engineering Department approaches to training new Review Group participants. They recommend that 20-40% of a functional review team be “Young” professionals. They also suggest that Reviewers should have between 5 and 25 years of experience. This implies that:
- The 20-40% of young professionals might have 5 -11 years of experience;
- 40-60% of the reviewers might have 12 – 25 years of experience; and
- Those with over 25 years of experience are being used as review team leaders.
This is a creative approach, not only to mid-career development, but also to facilitate the integration of new technologies and processes into field operations.
Looking over my own career, I feel that I received excellent early career training, but inadequate assistance with Continuous Professional Development. My frustration was exacerbated by self-study literature that emphasized the importance of developing new skills in order to better navigate “the bends in the leadership pipeline4.”
Several of the IHRDC E&P Integrated Development Planning or Cross Disciplinary Workshops try to address this challenge by actively involving the client’s Subject Matter Experts and Asset/Technical Team Managers as mentors or peer reviewers. These “simulated business games” provide both the participants and reviewers an opportunity to gain some battle scars from confronting unfamiliar situations in which the participants “don’t yet know what they don’t know”, so it is hard for them to imagine a wide enough range of possible outcomes – a great simulation of our real life!
1 Society of Fire Protection Engineers; Guidelines for Peer Review in the Fire Protection Process, 2002.
2 H. Maister et al, “The Trusted Advisor”, 2001, The Free Press.
3 Bratvold R. ‘Creating Value from Uncertainty and Flexibility’ 2016-17 SPE Distinguished Lecturer.
4 Charan et al, “The Leadership Pipeline; How to build the Leadership Powered Company”. 2011, Jossey-Bass.
5 Vo et al., “Peer Review Process: Adding Value, Enhancing Operations and Building Collaborative Teamwork Spirit in Production Engineering”, SPE 88513, 2004.