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Case Study

Engineering and construction - Ensuring post-merger “common philosophy and common design”

Engineering and Construction

A recently acquired company needed to change from a slow-moving industry patriarch to an agile market leader and was challenged by changing market conditions (declining commodity price) along with pressure from customers to deliver projects less costly, more quickly and more reliably.

The Situation

A Fortune 500 energy firm acquired a successful midstream company and sought to quickly realize synergy value from the purchase. The company had enjoyed significant growth, having built a sustained transmission business over 100 years, but sought to improve costs, reliability and speed to market. The acquired company needed to change from a slow-moving industry patriarch to an agile market leader and was challenged by changing market conditions (declining commodity price) along with pressure from customers to deliver projects less costly, more quickly and more reliably.

The Challenge: Commodity price decline along with post-acquisition complexity

Our Approach

The six-week analysis was aimed at identifying key components of cost improvements for engineering, supply chain, and project cost management and controls. The resulting work plan focused on scope within the Marcellus Shale basin in the Northeastern United States and was aimed at quickly realizing value from the acquisition.

The implementation of organization, business process and management system change was completed within 56 weeks.  Key elements included:

  • Supply chain process mapping
  • Development of contractor scorecards
  • Work breakdown structure mapping
  • Cost breakdown structure mapping
  • Development of standard modular gathering compression packages

Key Process Findings

  • Gathering compressor stations were not being delivered at competitive costs or cycle times
  • There was rework and duplication of effort in engineering and construction of gathering compression facilities
  • Gaps in project cost management and controls were resulting in overspend and delays in meeting committed ISDs
  • The lack of an integrated supply chain and materials management processes and tools resulted in material surpluses
  • Lack of scorecards and KPIs  

Recommendations

  • Optimize capital project development and execution cycle times and costs
  • Accelerate field compression modularization, standardization and cost reduction
  • Streamline development and execution process to attain sanctioned in-service dates

Results

  • The Gathering Compression Integration workstream resulted in an estimated $80 million-plus in long-term CapEx synergy benefits. The two pilot compressor facilities alone will move more than 1 percent of the natural gas in the US.
  • The Supply Chain workstream developed highly regarded processes and documentation, which supported a nearly $20 million reduction in surplus materials during the course of the project.
  • The Project Cost Management and Controls workstream successfully developed contractor scorecards, standardized cost breakdown structure and work breakdown structure, along with consolidated cost codes resulting in improved process and standardized documentation.

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