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Project Risk

The Operator and Prime Contractor usually place emphasis on achieving on-time and under-cost project completion, but do not always provide contingency planning until a crisis develops. The project execution plan as agreed between Operator and Prime Contractoris usually realistic for the specified assumptions but is probably neither optimistic nor pessimistic. It is often described as having a 50% probability of being achieved within budget and schedule, but this means there is a 50% probability of exceeding budget and not being completed on time. In addition to cost and schedule variance, the other major project risk exposure is reliability and production capability.

Merlin Advisors provides a set of risk criteria or a band of predicted outcomes. Although the full spectrum of project probabilities are developed, we typically report:
  • Mean non-exceedance probability data (similar to the project’s 50% probability case);
  • 75% non-exceedance case (often called “Most Likely Scenario”) assumes average industry problems, engineering judgment for added project costs due to site-specific issues; and
  • 95% non-exceedance probability case (often called “Worst Case Scenario”) assumes a high frequency and duration of problem occurrences.
Merlin's risk analysis is a must-have for the financing community and frequently justified for equity participants lacking the requisite internal LNG technical expertise and an up-to-datedatabase of project costs.

Joint use of an independent consultant by both sellers and buyers helps eliminate internal disagreements and can greatly assist in negotiating LNG Sales and Purchase Agreements.


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