www.pwc.

com/us/capitalprojects

Examples of our heavy industrial capital project

experience
Service

Value

Project controls development

PwC was retained to provide subject matter advise on project management control tools and
procedures to a client undertaking an $8 billion project to increase its production capacity.
PwC assisted with the establishment of governance, risk and compliance oversight functions;
advised on the program management standards and controls; and assisted with the alignment
of client procedures with industry practices and development of KPI and executive reporting
protocols.

Project controls development

PwC has been acting as an objective advisor to a client to assist with establishing, monitoring
and testing the project controls for multiple power plant construction projects (including two
new nuclear units and a steam generator replacement project at an operating nuclear plant.)
Our work involved helping establish an organizational framework and procedural structure
and approach for categorizing the strategic elements, establishing processes for documenting
risks, creating mitigation plans, and conducting risk assessments.

External oversight

PwC provided continuous external project assessment services to a major EPC vendor in
relation to its LNG construction program. To date PwC has completed project assessments on
projects in China, United Kingdom, Peru and Angola. The engagement has involved
comprehensive assessment of the project control tools related to cost, time and change control
to identify areas of risk and opportunities for performance improvement.

Forecast evaluation

PwC was retained to evaluate the cost and schedule forecast of a multi-billion dollar
construction project that was projected to be 75% over the originally sanctioned budget. PwC
evaluated the EPC vendor estimates, validated the current state of the project, and challenged
key assumptions used to support the forecast. PwC modeled risks and uncertainties to identify
a P80 estimate at completion and identify potential areas of future cost exposure to focus
management attention.

To have a deeper conversation about how capital

project risk may affect your business, please contact:
Peter Raymond
+1 703 918 1580
peter.d.raymond@us.pwc.com

Daryl Walcroft
+1 415 498 6512
daryl.walcroft@us.pwc.com

Steve Lechner
+1 415 498 6596
stephen.p.lechner@us.pwc.com

Jason Brown
+312 391 1098
Jason.r.brown@us.pwc.com

Anthony Caletka
+1 646 471 5405
anthony.caletka@us.pwc.com

Brett Bisaga
+1 267 330 1784
brett.bisaga@us.pwc.com

Ralph Roam
+1 267 330 2241
Ralph.e.roam@us.pwc.com

www.pwc.com/us/capitalprojects
2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.
PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see
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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Solicitation.

Investing in and
building petrochemical
capital projects

How PwC helps capital

projects & infrastructure
clients deliver on
strategic priorities

Our view of the petrochemical capital project landscape

Recent technological developments in North America
shale gas drilling have translated into the potential to yield
862 trillion cubic feet of technically recoverable shale gas
in the United States. The actual amount of recoverable
shale gas may be debatable. The bottom line is not: an
abundance of shale gas reserves in North America has
revised the cost economics of domestic natural gas.
With natural gas prices at near historic lows and projected
to remain low for the foreseeable future, the US
petrochemical industry has gained a global competitive
cost advantage over traditionally feedstock-rich regions
and countries.

The decline in feedstock raw material pricing from liquidsrich shale gas basins is creating new opportunities for
chemical industry production. These market dynamics
encourage early movers to deploy billions of dollars in
capital to reposition manufacturing assets to the US.
After a decade of overseas expansion, the new wave of
chemical processing capacity buildup will be the largest in
the U.S. yet. In a 2011 report, the American Chemistry
Council estimates new capital investment in the ethane
chain alone of at least $16B. (Source:
http://www.americanchemistry.com/ACC-Shale-Report)

What is at risk
Capital projects are inherently risky. While organizations
are often skilled in enterprise risk management and other
processes that focus on their core business, the tools used
to guide a bottom-line focused enterprise do not easily

transfer to managing deadline-driven, technically complex

capital programs. Below are some of the major capital
project risks facing the chemical industrys imminent
capacity expansion in North America.

What you can do

Exposure to risk cannot be avoided, but it can be managed.
In our experience advising on capital projects across
multiple industries, project owners who implement robust
governance practices that are specifically designed to meet
the demands of the capital project delivery process are the
ones most likely to achieve their cost, schedule, and

performance quality goals. If you accept that risk

management is a top success factor in construction, then
you should prioritize the investment you make in objective
project oversight. Also, consider that the risk you face is
multi-dimensional and shifting, requiring an agile, multidisciplinary management and oversight plan.

How PwC can help

PwCs Capital Projects & Infrastructure (CP&I) practice
includes financial, project management, risk management
and engineering professionals who specialize in providing
clients with advisory services related to the development of
project delivery strategies and the identification,
assessment and mitigation of project delivery risks. Our
team has dedicated their careers to the capital project
industry and our professionals are intimately aware of the
prevalent practices in the industry.

Our approach, experience and technical capability have

earned PwCs CP&I practice a reputation for delivering
objective advice on construction strategy, financing,
procurement, and delivery.
Our range of services reflect our experience in working on
complex capital projects across industries. We have
developed a framework that captures the essential
functions your organization will need to perform
throughout the project delivery lifecycle.

Major capital project risks

Impact

Circumstances

Contract pricing

Resource availability

Legal and regulatory

The majority of recent

chemical projects
outside the U.S. were
completed through
lump sum agreements
sponsored by GSEs
while cost
reimbursable contracts
are prevalent in the US.

Limited availability of
large EPC vendors,
who face up to three
years of global
construction backlog.

The US market can

drive aggressive
contract pricing and
subsequent disputes
from contractors.

Regional shortages of
skilled trades and
project supervisory
personnel will likely
continue to manifest.

Expanding US
regulations will
increase the focus on
compliance, compared
to emerging markets.

Labor and commodity

cost growth risks will
have to be assumed
and managed by the
owner.

Diminished
bargaining power and
a depleted labor pool
can impact schedule
and quality.

Potential for disputes

and the uncertain
regulatory landscape
can drive both cost
and schedule risk.

Environment / safety
EHS incidents can
have asymmetric
financial and
reputational impacts
and the U.S. has
historically had higher
EHS standards than
emerging markets.

Non-compliance costs
can be amplified
through fines, delays,
and resulting
litigation.

Our view of the megaproject risk and control environtment

Different project, owner, and market
drivers define a capital projects
risks, which are allocated to project
participants.
Owners should consider a control
environment designed to mitigate
the residual risks from their risk
allocation plan and not transferred
though the contract strategy.

Project drivers

Time to market, design maturity, interference

with existing operations, ROI requirements

Owner drivers

Internal project delivery capabilities, risk

tolerance, public relations

Market drivers

Contractor and skilled labor shortages, supply

chain capacity, regulatory environment

Risk environment
Schedule
Cost
Quality
Production and
reliability
Resource availability

Risk allocation
Mitigation capability
Accountability
considerations
Tradeoffs

Contract strategy
Organization (EPC/M,
Multi-Prime, Alliance)
Pricing arrangement
(Cost plus, lump sum,
hybrid)
Award options
(competitive,
negotiated)

Control environment
Project governance
Project management
processes
Project execution
procedures
Contract compliance