TengizChevroil SGI/SGP Onshore Oil and Gas Projects

Case Study Workshop

Fluor, Farnborough, UK
This case study was written by Imad Mobayed as the basis for a practical workshop. The author does not intend to illustrate a real-time project situation. The Case Study and Handouts were made possible by the co-operation of Hilti and Fluor Limited, UK.

Sep, 2013

Tengiz Gas Field

Located on the north-eastern shore of the Caspian Sea, the Tengiz Field in western Kazakhstan is one of the worlds 10 largest crude oil fieldsand one of the most complex to produce. The field is operated by TengizChevrOil (TCO), a joint venture between Chevron (50%), ExxonMobil (25% share), KazMunayGas (20%) and LukArco (5% share). The crude oil produced from Tengiz is high in hydrogen sulfide gas and about a third of the gas produced is re-injected back into the reservoir to maintain an ultra-high pressure in the field in order to maximise production

The asset development includes two expansion projects, the Sour Gas Injection (SGI) and the Second Generation Plant (SGP) projects. These extraordinary projects will more than double the production capacity from 13 MTPA (Million Tonne Per Annum) to over 25 MTPA. The weather conditions in Tengiz are extreme, with the temperatures ranging from +40 Celsius in summer to below -40 Celsius in winter. This makes the execution of such a large-scale project very challenging and a focus on reliability at all times is a key element for project success. Transport options for major equipment include the use of the Volga-Don canal system into the Caspian Sea and then rail from the port of Aktau into Tengiz. The canal system is impassable between November and March due to freezing. The rail system imposes size limits on the cargo which can be transported.. The majority of the employees in Tengiz are from Kazakhstan and Chevron has nurtured the growth of thousands of talents through its training centre in Atyrau, such as pipeline fitting and welding.

SGI/SGP Onshore Oil and Gas Projects

In 2000, Fluor and its joint venture partner have been awarded the engineering, procurement, and construction management (EPCM) services for the SGI and SGP Projects at the giant Tengiz fields. The Fluor-led JV has been providing services to TCO for the past 10 years, and these new projects will create many further opportunities for the development of the Kazakhstani oil and gas infrastructure. The SGI project has been divided into two stages: the first stage to inject sweet gas from the processing facilities into the reservoir to prove the operation of the compressor and validate the predicted response of the reservoir. The second stage to expand the installation, permitting injection of high pressure sour gas (17% H2S) from SGP and to provide the opportunity to process an additional 3 million tonnes of oil within the oil/gas separation area of SGP. The SGP project included new production wells and associated gathering system together with crude stabilisation, crude desalting, sour gas dehydration, gas processing, sulfur recovery, crude oil export systems, LPG processing, storage, and loading, as well as off-sites and utilities.

Fluor JVs EPMC services contract also included a power plant at the project site, an extensive infrastructure upgrade that included 435 miles of railway, and in addition to the major power plant equipment, the JV was responsible for all associated piping and support racking necessary, electrical and control equipment, and BOP equipment within the Power Island battery limits.

Work Progress
The onshore development of SGI/SGP started in 2004 and in October 2007 the five plant areas at SGP were completed. The Sour Gas Injection began in December 2007 at the heart of Tengiz fields, standing 12 kilometres to the south of SGP. The project is scheduled for start-up on the second half of 2008, and by then Fluor JV would have delivered: The largest single-train oil and gas separation facility, the largest single-train sulphur recovery unit and the first-of-its-kind high-pressure high H2S gas re-injection facility. 100 kilometres of steel pipes and 4,062 corrosion-resistant coated piles measuring 450 meters long and 280 meters wide 700 kilometre railway from Aktau to Tengiz, along with utilities and offsite constructions 175,000 man-hours of and the daily mobilization of 12,000 workers during peak of construction

Remaining Activity
One activity on the critical path is yet to be finalized: the fabrication and installation of Multi-Disciplinary Supports (MDS) for service pipes and cable ladders at various facilities within the GSP plants. Four typical arrangements of the MDS have been identified as captured in exhibit-1, and the required quantity and dimensions of each typical is tabulated in table-1 As most of the processing equipment has been already assembled with maximum dressing and refractory lining, it was decided that the MDS will have to be pre-assembled offsite, then positioned in place using post-installed anchors to avoid the risk of congesting the area. It was also decided that hot-works will be prohibited during the installation of the MDS to avoid any possible damage to the equipment. The procurement team has already invited three different fabricators to submit quotations and table-2 presents the fabricators breakdown price for m aterial, labour and transport, manufacturing capacity and delivery lead-time. Table-3 summaries the Cost Schedules and table-4 summaries time schedules for the fabrication and deliveries of the 200 MDS of all three fabricators. Moreover, the man-hours requirements for onsite installation time are shown in table-5.

The challenge
Due to the hostile weather conditions between November and March, 3000 man-hours had to be extended to compensate for the lost productivity. Whilst 2000 man-hours has already been recovered without causing any safety risks or affecting the costing plan, the project team is still investigating for opportunities to bring the project back to plan. To avoid congesting the plant facilities area or causing damage to the equipment, the following site restrictions apply to the installation of the MDS: Maximum of 4 workers on each MSD site installation limited use and availability of onsite cranes and hoists prohibition of the use of hot-work, such as welding or grinding The limitation on the number of workers and the use of cranes and hoists have implications on the installation time, whereas the concern about the prohibited use of hot-work is linked to the fact that the pipe fitted on top of the goal post of the MDS needs to be positioned and welded in place. Moreover, as the MDS will be pre-fabricated then transported to site, the road conditions combined with the harsh winter climate makes road transport both slow and hazardous.

Results
Fluor JV successfully delivered the world-scale expansion of the TCO in the second half of 2008. Quoting Guy Hollingsworth, the president of Chevron Europe, Eurasia and Middle East Exploration and Production "The successful start-up of the first phase of the expansion is a state-of-the-art technological achievement and a demonstration of our ability to execute next-generation, highly complex projects," In 2012, Crude production was 24.2 million metric tonnes (193 million barrels). TCOs actual production was 3.7 percent below the business plan target, mainly due to transportation system constraints beyond the control of TCO, weather induced disruptions and SGI/SGP plant reliability. The SGI/SGP turnaround was a success and TCO achieved record production levels post-turnaround. This was due to the fact that the turnaround team spent two years planning every detail of this project, and executed with excellence. TCO worked with over thirty contract companies on all stages of planning, preparation and execution. The 6,500 person workforce was mobilized and demobilized with no significant safety incidents.

Future Opportunities
In May 2012, TCO awarded the FEED and EPCM contract of the Future Growth Project to Fluor-led joint venture with WorleyParsons. The Future Growth Project (FGP) will utilise sour gas injection technology used in existing operations. An early estimate of the total project cost is in the $6 - $8 billion range. The on-going FEED work will refine the estimate range.

References:
1. Rameshni, M., WorleyParsons Selection Criteria for Claus Tail Gas Treating Processes 2. Roberts, P. and Armstrong, L., WorleyParsons Challenges for Processing Oil and Gas from Kazakhstan, GPA Europe Conference, Warsaw 2005 3. Sulphur Technology Capability and Experience 4. Block, M., Amott, N. and Lanterman, J., Sour Gas Injection Design Extends the Envelope in Kazakhstan, GPA Europe Conference, Warsaw 2005 5. Eurasia Business Unit Overview, Jay Johnson, Managing Director, Eurasia, Atyrau, Kazakhstan, May 11, 2011, 6. Tengiz Investor Relations Visit, Chris Laidlaw, May 11, 2011, Atyrau, Kazakhstan 7. Tengizchevroil Overview, Tim Miller, General Director, Tengizchevroil, May 11, 2011 8. Future Growth Project, Paul Benoit, FGP Project Director, May 11, 2011, Atyrau, Kazakhstan 9. Tengizchevroil - Investor Briefing, Norman Hansen, General Manager, Marketing & Transportation, Atyrau, Kazakhstan, May 11, 2011 10. Kazakhstan Fact Sheet, Chevron Corporation., April,2013 11. http://www.fluor.com 12. http://kentech.ie/en/project/11/sgi-sgp-project-tengiz-kazakhstan.html 13. http://www.hydrocarbons-technology.com/projects/tengiz/ 14. http://www.tengizchevroil.com/en/ 15. http://www.chevron.com 16. http://www.worldsteelprices.com 17. http://www.engineeringtoolbox.com/british-universal-steel-columns-beams-d_1316.htm

TABLE-1: QUANTITY AND WEIGHT OF MDS MDS TYP-1 0.48 48 23.04 MDS TYP-2 0.48 59 28.32 MDS TYP-3 0.54 54 29.16 MDS TYP-4 0.54 51 27.54 Total

Estimated Weight (tonnes) Quantity of each Total Estimated weight (tonnes)

212 108.06

Notes: - Estimate weights are based on the weight of the steel structure, the base plate and material wastage - Please refer to Exhibit-1 for more information on each typical detail TABLE-2: QUOTATIONS FROM FABRICATORS Fabricator Material Cost Labour Cost Total Fabrication cost Transport Cost (Mark-up) Set-up and Preparation Time Manufacturing Capacity Delivery time 1 600 1450 2050 11% 3 10 3 2 580 1400 1980 12% 5 12 3 3 620 1450 2070 10% 2 11 2

/Ton /Ton /Ton % Days Tons/Day Days

Notes: - Quoted labour cost is based on 8/hour for fitters and 10/hour for welders - Transportation cost is based on full contain load and site delivery only. Partial deliveries may incur additional costs. Offloading of containers, crane hire or positioning at site is not included - Transportation cost is % mark-up of the sum of Material and Labour Cost - Set-up and Preparation Time may vary depending on the date of order release - Manufacturing Capacity is based on the weight of steel structures that can be fabricated per working day - The Delivery Time is the number of working days required for each delivery from the yard to site. This includes loading to container and transport to site. Offloading at site and positioning is not included TABLE-3: FABRICATION COST Fabricator Material Cost Labour Cost Total Fabrication Cost Transport Cost (mark-up) Total Cost 1 65,013 157,115 222,128 24,434 246,562 2 62,846 151,697 214,543 25,745 240,288 3 67,180 157,115 224,295 22,429 246,724

Notes: - Fabrication cost is derived from the estimated weights in table-1 and the fabricators quotes in table-2 - Cable Ladder Racks and Pipes to be provided as part of Bulk package. Cost of these items is not included

TABLE-4: FABRICATION AND DELIVERY TIME Fabricator Set-up and Preparation Fabrication Delivery Total Fabrication Time 1 2 11 3 16 2 3 9 3 15 3 2 10 2 14

Days Days Days Days

Notes: - Fabrication and Delivery Time is derived from the estimated weights in table-1 and the fabricators quotes in table-2 TABLE-5: MAN-HOUR TIME AND COST REQUIREMENTS FOR SITE INSTALLATION MDS TYP-1 48 4 192 12 2,304 MDS TYP-2 59 6 354 12 4,248 MDS TYP-3 54 8 432 12 5,184 MDS TYP-4 51 10 510 12 6,120 Total 212 1,488 17,856

Quantity of each Man-Hours Required Total Number of Man-hours Man-hours rate Total Cost of Man-hours

Notes: - Labour hours are for both, offsite and onsite works. Offsite works include unloading, transporting, lifting, positioning, painting, and welding activities. Onsite works include positioning, assembling and anchor fixing the structures to. - ALL welding activities have to be completed offsite and outside the plant facilities. Onsite welding is prohibited