A coastal refiner: one capital book across four decisions.

The situation

Four decisions drawing on one pool of money

Every figure on this page is invented. The refiner faces four capital decisions in the same year, each owned by a different team:

• Expansion. Which of seven candidate units to build with a $1.1bn budget: a paraxylene unit, a butadiene extraction unit, a hydrocracker upgrade, a specialty-solvents train, a polyols plant, green hydrogen and captive renewable power.
• Ventures. A corporate venture programme in climate technology, with a $120M envelope over four years.
• Construction. A five-unit programme already under way, $950M at award.
• Sustaining capex. 85 small projects requesting $340M, 31 of them already in execution, against a $235M two-year envelope.

All four are exposed to the same things: crude and gas prices, an aromatics and polymer cycle under pressure from new regional capacity, the same contractor crews and the same feedstock streams. Funding each list on its own ignores all of that.

What Capibud does

Each decision on shared scenarios, then one committee

1. Evaluate: seven units, solved together. Options are simulated on shared factors (crude, gas and the petrochemical cycle) with hard limits that a ranked list ignores: about 210 kt a year of spare reformate for aromatics, one plot that can take only one of the two derivative plants, a paraxylene unit that needs the hydrocracker upgrade first and electrolysers that need captive renewable power. Four synergies, such as a shared jetty and tank farm for the paraxylene unit and the hydrocracker upgrade, are priced in.
2. Evaluate: one assumption replaced. A flat regional paraxylene supply assumption of 1,250 kt a year is replaced with the tracked regional capacity pipeline, 1,780 kt a year by 2032. Portfolio expected NPV falls from $455M to $398M, and the bad-year value (P10) from $118M to $79M.
3. Invest: the venture book on the same factors. Climate-technology tickets are sized with 40% of the envelope held for follow-ons and at most a fifth in any one venture. Strategic synergy is valued at the scenario carbon price, so a carbon shock moves the ventures and the decarbonisation capex together.
4. Execute: the monthly review. Five units, from the coker revamp to the product jetty, are forecast from actuals. Mean forecast cost comes out $34M above budget authority. At P80 (the cost stays below this in four scenarios out of five) the overrun is $68M, and at P90, the bad year for cost, it is $91M. Contingency of $26M covers 38% of the P80 requirement.
5. Capex: the sanction round. The 85 projects are fitted to the envelope, crews and shutdown windows, then routed in four batches: 13 proposals to plant managers, 8 to the CFO, 3 to the executive committee and 1 to the board. A separate example, the process-plant capex round, covers a round like this in detail.
6. Committee: one envelope. 22 candidates (4 expansion selections, 7 venture tickets, 4 recovery moves and 7 capex groups) are pooled on 3,000 shared scenarios. Each carries a hurdle by risk class over an 11.25% cost of capital, and the plan must be no worse than today's in the bad year.

Results

A better plan on less money, from a few moves

Where the gain comes from

The pooled plan differs from today's plans in a handful of moves:

• Release one venture commitment, a pilot-plant equity ticket of about $18M, because the money earns more elsewhere after the venture hurdle.
• Fund extra crews on two units in construction: about 260 more mechanical and piping workers on the coker revamp and 180 on the low-density polyethylene line. Protecting a committed programme carries no hurdle premium, so it is cheap value.
• Fund the best unfunded reliability group from the capex round.

The programme in construction

The coker revamp sets the programme finish, about seven months beyond target at P80. The contractors' latest milestone dates run 30 to 65 days earlier than Capibud's P80, four change orders are pending, and the coker contractor's CPI is 0.86. Crew levelling allows for the planned turnaround's draw on mechanical crews and a wet-season derate, each labelled as an estimate.

What would break the plan

The pooled plan's value after hurdles falls to zero only under a joint factor move of about 3.1 standard deviations, led by petrochemical margins (about −2.7σ) and refining margins (about −1.9σ). Its advantage over today's plans turns negative if the carbon price falls by more than about 1.7 standard deviations.

Limits

Read the gain for what it is

• The figures are invented. Every number on this page was made up to show how the method works. It is not a client, not a Capibud demo workspace and not drawn from any company's data.
• The size of the gain is not a forecast. $53M on $812M is about 6.5%. Pooling helps most where decisions share money and risk; in your portfolio the gain could be larger, smaller or nil.
• Hurdles drive the answer. Releasing the venture ticket follows from the six-point venture premium. A committee with a different policy would get a different plan, and should.
• No outcome evidence. Nothing here shows that a pooled plan does better in reality. That needs real decisions and time.

What this means for you

Most companies already have the four lists