Stage Gate Process

Economics And Risk Management In

Exploration

By
Simson Raju
Sapid- 500073494
Ashok Kumar Dhaked
Sapid-500077738

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INTRODUCTION
• Stage gate process is also called phase gate process. It is a project management
 technique in which a project is divided into distinct stages or phases, separated
by decision points (known as gates).
• The Stage-Gate process consist of a series of stages and gates. Each Stage is
defined by a set of specific research activities and gates are checkpoints where
critical decisions are made.
Overall objectives are to:
 integrate uniform guidelines into portfolio management
 optimize research investments
 control project quality and maximize outcomes
 standardize decision-making
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.

Fig 1. stage gate process basic decision diagram (source. SPE research paper 102926)

Phase 1 – Feasibility:  The feasibility phase should answer very basic questions such as:
a) is the project feasible?
b) what are the key values in the project?,
c) what are the conditions required for the project?,
d) what are the full-life cycle risk factors?
  During this phase, the project team and management also should determine if the project is
aligned with the company’s strategic vision

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Phase 2 – Selection:  The goal of the Selection Phase or Phase 2 is to select the best
development plan out of a wide range of commercialization concepts. This phase
requires a balanced mixture of creativity and discipline that allows the project team
to identify and evaluate alternatives that will lead to the maximum value creation. 
At the end of this phase, a preferred development plan is identified that will be the
basis of the future project activities.

Phase 3 – Definition:  During Phase 3 or Definition Phase, the selected

development alternative is further studied and refined into sufficient detail as
required to proceed further.
Phase 4- execution- it defines whether the project eveluation been sufficiently
done so that the execution phase can start safely and economically
Phase 5- operations- considers whether the project is operated in a safe and
operationally effective manner.

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Gates- These are decision points for initiating funding or moving
forward with a project.
At each gate the following occurs:
• A set of criteria is used to judge the progress of the project
• A decision is made as to whether the project should go ahead, be
delayed, or stopped
• Approval of funding is made for the next stage
• A path forward for the next stage is presented and approved

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• Gate review is done by gate keepers who are individuals or groups of
individuals that are responsible for deciding whether a project should
continue and receive funding for the next stage.
• Gate reviews are held to evaluate the progress of each project against
a set of criteria that are defined at the outset of each stage. Work
completed during a stage produces the information needed for
decision-making regarding continued funding of a project.
• Gates must have clear, well-understood criteria so that gatekeepers
can make objective and timely decisions. Criteria must be specific
enough to engage management in the decision process and enable
them to ascertain the risks and benefits of going forward.

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Gate Review Outcomes
In Managerial terms-
GO FORWARD -goals for the previous stage were met; Gate

technical, market, financial and operational information

has met expectations and funds approved for the next
stage dependent on annual funding.
KILL (stop)- project is not progressing as it should
because the market has shifted permanently, The project
is not good enough to develop further and is shut down
right away. Stage

HOLD -project has been suspended for a specified period

of time and the criteria will be re-evaluated at a future
date.
RETURN- goals have not been accomplished or the
criteria have not been met, but the project is good
enough to develop further, provided some changes are Fig.2. Stage gate process flow. (source. Oil field
made. development petroleumonline)

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• Field Project Managers and other gatekeepers will provide input and
recommendations for the decision making process.

Fig.3a,b. outcomes of Stage-gate review (source. Stage-Gate Innovation Management

Guidelines ITP)

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Stage Gate Process In Oil And Gas Industry
• Throughout its life cycle from exploration to abandonment, an oilfield requires
the participation of many different experts, working in teams, to make major
investment and operating decisions.
• These decisions must be made under conditions where uncertainties exist not
only about the operating costs and future performance of the reservoir, but also
with respect to the future price and market demand for the produced oil and gas.
• To understand these risks and uncertainties and to understand investments
needed to develop a field in an economically efficient way, stage gate analysis is
done.

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Fig.4. The Stage-gate Process shown here is based from concept to production(source. OFD Petroleum online)

There are five stages in this process:

• Stage 1 is devoted to the Identification and Assessment of Opportunities. This is
essentially the Exploration Process.
• Stages 2 and 3 are the Development Planning stages, where many teams of
specialists perform feasibility studies in order to define the optimal development
plan for the field, including costs, schedule and project economics in order to
obtain a Final Investment Decision (FID).

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• Once the FID is made, Stage 4, the Execution of the Development Plan,
(essentially the Field Construction period) takes place.
• Stage 5 is devoted to the long-term Management of Production Operations. At
this stage, the objectives are to optimize production, improve efficiency and
maximize the net present worth of the asset by often making additional
investments to recover incremental reserves.
• At any phase of the production also the company asks for stage gate process
depending on the uncertainty, risk or decision which is to be valuated in an
efficient way.

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Application
• Scaled to Suit Different Risk-Level Projects
• Flexible process
• Adaptable
• Can be applied at any point during life cycle of project
• Used mainly at time of development

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Limitations
• The effectiveness of the method highly depends on the behavior of senior
management members that are appointed as gatekeepers. 
• Where the Stage-Gate Process allows many other tools to be incorporated within
the framework, no clear guidelines are given on possible limitations or guidelines
for implementation. 
• Number of iterations which may cause the loss of time and money too much. This
might result in a negative attitude of the gatekeepers towards recycling of gates.
• Stage gate mostly depended on time rather than scope of the developing project
profile.
• Takes too much iterative steps between the stages

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Conclusion
• The Stage-Gate process is an effective innovation
management tool and used to incorporate
structured decision-making into the research
investment process.
• Each stage is designed to reduce levels of
uncertainty and risk
• Implementation of the Stage-Gate process begins
immediately after project is awarded.
• A uniform decision making structure is provided
early-on and throughout the project by gate keepers
• Each stage is designed to collect specific information
or meet specific goals, and cross-functional teams
collaborate and various functional capabilities are Fig.5. Risk Vs. Time (source. Energy review ITP stage gate process)
integrated into the development process.

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References
• Optimizing the Stage-Gate Process, Part II,“ Robert Cooper, Research Technology
Management, Industrial Research Institute, Volume 45, Number 6, November-
December 2002.
• http://
apppm.man.dtu.dk/index.php/Stage-Gate_Process#Basic_Elements_of_the_Stag
e-Gate_Process
• https://www.petroleumonline.com/content/overview.asp?mod=5
• https://www.petroleumonline.com/content/overview.asp?mod=5
• https://www1.eere.energy.gov/manufacturing/financial/pdfs/itp_stage_gate_ove
rview.pdf

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Thank you
Questions?

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