This past July, a gas plant owner/operator (midstreamer), and a natural gas producer announced that a 198 MMscf/d shallow cut gas plant project in Northeast BC was newly opened for business. Located in BC’s natural gas rich Montney formation, this project came about as a result of a long term strategic alliance between the producer and the midstreamer.
In their respective press releases announcing the opening, both companies released the typical collection of data and accolades that one would normally expect. Effectively, both companies reported that the plant was on stream more than 30 days ahead of schedule (adding 30 days of revenue for both companies), under budget, and executed with an impeccable safety and low rework record during construction.
In the project completion’s broader context, there was another compelling story about how these accomplishments were made possible behind the scenes. In short, the real story behind the opening of the new gas plant was not so much that it was open for business, but rather, how it was engineered and constructed so efficiently. This is especially true given the financial and time constraints the company responsible for designing and building the plant faced to complete the project as per the agreement.
To give context, a midstreamer or a producer will typically go about building a new gas plant when a producer’s output requires processing prior to being transported by pipeline to market. To go about building such a plant, companies usually approach an engineering, procurement and construction management company (an EPCM) to assist in the plant’s design and construction. The EPCM will work through the stages of engineering – conceptual to detailed engineering – during which time major equipment is procured and bid packages are generated for fabricators and constructors. Thus, while EPCM’s offer a single point of accountability, seldom do they have fabrication and construction all under the same roof.
But for this particular gas plant, several factors coalesced to result in the formation of a new type of company and a better, more efficient way of doing business.
The story however starts with the design and construction of a different plant prior to the one in Northeast BC. When Stephen Weiderick, the owner of Calgary based SAW Engineering was awarded an EPCM contract to build a gas plant, as per usual he went about engaging key vendors (including fabricators and construction contractors) to ensure the most cost effective solutions were incorporated. Notably, one of these vendors was Propipe Group, a Calgary based full-service fabrication and facility construction company.
With this project, after all was said and done, it was successful by all accounts – on time and budget with the client satisfied in the facility and operations running smoothly. However, Weiderick, along with SAW’s VP of Operations Serge Després, Propipe’s President Mike Esfarjani, and Chief Operating Offer Jeff Schoenhals, learned that through their collaboration, significant opportunities existed to further improve upon the efficiency of all design and build projects.
Their realization turned out to be the catalyst for the evolution of a new completely integrated engineering, procurement, fabrication, and construction company to be located under one roof. It also laid the groundwork for how the $325 million gas plant in Northeastern BC was to be so efficiently designed and built.
“We quickly found that we shared a strong passion for doing good work and a common belief that projects should be construction driven with a lean integrated approach,” recalls Weiderick.
With the client’s contractual obligation to have the plant on-stream within a short timeframe, naturally it became heavily schedule driven and highly collaborative. Had SAW Engineering and Propipe Group not worked so well together, completing the project on time and on budget wouldn’t have been possible.
What this new collaborative approach meant was that each decision made in the project’s planning and construction process was made in the best interest of its inherently aggressive schedule. “
In the EPCM industry, capital costs are heavily weighted towards the construction of a project. That said, it is in the construction process where the most opportunity to go over budget and over schedule exists. With any EPCM project, there are four key drivers: Quality, safety, cost, and time. Firms will always look to maximize the first two and minimize the third and fourth. Very difficult is it to optimize the four key drivers in perfect harmony. Usually if quality is the number one priority, time and/or cost will be sacrificed.
Yet what makes the completion of the natural gas processing facility the SAW/Propipe team worked on so impressive, was that somehow they were able to nail all four key drivers. “To do what we did, we could not do things in a traditional manner. We had to collectively rethink our approach to the business,” said Schoenhals.
In rethinking how gas plants are built, the SAW/Propipe team reorganized their industry’s traditional structure. By doing so, only then would they give themselves a chance to make the tight schedule and best optimize quality, cost, and safety. For example, they found that by letting everyone have a seat at the table when planning the project, vast amounts of time and money would be saved. In a way, by collaborating more as a team in the initial stages of the project, it was akin to the old carpenter’s saying: measure twice, cut once.
The team at Propipe also introduced an innovative software program that made collaborating across the entire project’s scope far easier. “Our in-house project management software enabled us to eliminate a multitude of redundant drawings and the back and forth that is associated, “said Schoenhals.
Traditionally, when multiple firms are involved in engineering, procurement, fabrication, and construction, a sort of combative game takes place in the bidding process for work. “What ends up happening is a project’s scope often isn’t fully defined in the front end which then leaves gaps and room for error,” said Weiderick.
“Cost and schedule overruns can happen at times because constructability hasn’t been fully considered at the design stage,” commented Schoenhals. “Schematics are oftentimes good, but they can be impractical. This is why collaborating with the engineers and having a construction perspective in the planning phase of a project was critical to achieving our ambitious goals.”
Instead of only having engineers present in the engineering phase of a project, the team included people from the construction side of the business. “We invited construction field advisors in the engineering planning phase. Up until we started doing that, giving them a say that early on in a project’s planning was simply not done,” said Weiderick.
Part of the reason why the EPCM industry remained structured as it was for so many years, despite the opportunity to become much more efficient, is because it was in each firm’s best financial interest. “Revenue in our industry is on a billable hour basis,” comments Weiderick. “To do a project in significantly less time than the industry average, ultimately means less revenue and profit.”
To truly work in their client’s best interest for this project, the SAW/Propipe team not only had to beat industry average project completion times, but also leave revenue on the table. Making such a sacrifice was only made harder when management had to convince their employees that despite not getting as many hours and therefore less wage on the job, it was still in their best long term interest. More work would follow, the thinking went.
“What was so crucial for our management, was our ability to educate and convince everyone in the organization that this new model will be better for them in the long term,” said Després looking back. “Instead of focusing on billable hours, we decided to focus on repeat business.”
By realigning the incentive structure, the results were staggering. The team achieved a project completion time of 16 months, it was done under budget, there was over 600,000 man-hours with zero lost time injury, and a rework cost of less than 1% (an indicator of quality).
Yet, however beneficial it was for SAW Engineering and Propipe Group to combine their businesses, going forward there would still be a price to be paid. For Propipe, doing so ultimately has meant a thinner deal flow and therefore a greater degree of uncertainty for securing future work. “They need to be given credit for teaming up with us because already they’ve seen companies remove them from their list when sending out project bids,” said Weiderick.
However, this won’t stop the newly formed company, which they’ve renamed EPFC Corp., to continue operating in an integrated and increasingly efficient manner for each new project the company takes on.
In many ways, the SAW/Propipe story is the perfect case study for how industry as whole was anticipated to respond to the price crash. All too often phrases like ‘trimming the fat and buckling down’ echoed throughout the media to serve as the default answer to everyone’s question of what would happen next. What was never fully understood was precisely how industry ‘fat’ was to effectively be ‘trimmed’.
But if the way the Saw/Propipe team responded to the price crash is in fact emblematic, what happens if, seemingly overnight, oil and gas prices go back up to where they once were? In that environment, all the more reason will there be for firms to go back to their old relatively careless habits. In that scenario, how would the newly formed EPFC Corp. fare? How well would the team be able to maintain their newly forged competitive advantage of such impressive discipline and collaboration?
“The best thing we can hope for with commodity prices is that they slowly return to their prior levels,” said Després as he motioned with his arm an angle just shy of 45 degrees. “If that happens we will have time to prove how much more effective our approach to business is.”
Given how volatile commodity prices are prone to be, a slow and steady price increase may seem a tall order, yet the team remains optimistic.
“EPFC Corp.’s goal is to be the industry leader. We want to maintain and solidify the excellent reputation we have earned through our recent project execution. But to achieve that, all that we can focus on is the next project at hand and how well we can serve our client’s best interests,” said Schoenhals. “We have to maintain and cultivate our partnership mentality.”