Final Investment Decision Definition
The Final Investment Decision is the crucial moment of a project lifeycle when the Operator decide to commit on moving forward with the execution of the project. Final Investment Decision is a formal and binding decision to invest capital and begin detailed engineering, construction and comissioning.
Final Investment Decision can often be seen as its acronym “FID” is in the Oil & Gas, Petrochemical and Energy Transition industry.
FID or FEED
FID must not be confused with FEED which is another acronym commonly used also in the Oil & Gas and Petrochemical industry and stands for Front End Engineering and Design.
Anyway both are in close connection since the FEED prepares the FID.
The FEED tends to happen at the first half of a project, between the forefront conceptual study or feasibility study and the FID to trigger the project execution usually called engineering, procurement and construction (EPC) phase.
Capital Investment Decision (CID)
The investment decision is part of the Capital Investment Decision (CID) as part of the long term corporate finance decisions based on key criteria to manage company’s assets and capital structure.
The Oil & Gas and Petrochemical companies use to evaluate permanently a large broad band of projects in term of:
– Return on capital employed
– Risks, which is an important factor in the Oil & Gas and Petrochemical industry
– Financing structure
– Synergies between upstream and downstream in respect with company’s strategy in this area and access to resources.
The evaluation of these criteria, and thus the investment decision, will start with the feasibility study or conceptual study.
If the feasibility study is rated positive, the evaluation will continue by the FEED.
Normally a FEED is delivering positive conclusions, it is very rare that a FEED leads to negative conclusions.
Anyway a positive evaluation in conclusion of the FEED does not means that the FID will come systematically because all the projects of the company are ranked according to the criteria above and only the best projects of the list may go one.
Final Investment Decision Criterias
Many Oil & Gas and Petrochemical projects may be highly profitable but the risk level might be also high, therefore these projects may have hard to move forward to Final Investment Decision until a local drastic change allows to damp the risks.
Then the Capital Investment Decision (CID) is based on:
– Investment decision
– Financing decision
– Dividend decision
In practice it means that the FID will be made only when the company has completed the financing and defined its dividend strategy for the year to come.
Since the FID is attached to the financing which may have an impact on the debts level of the company and to the dividend, the FID will be made by the Board of the company based on the proposal of the Executive Committee.
Final Investment Decision Board
The Final Investment Decision may be postponed until the Board and the Executive Committee are aligned.
This point takes a particular importance in large project driven by a joint venture between two or more partners.
The joint venture may have its own Executive Committee, while decisions are made the Board of the different partners.
The company named as operator leads the Executive Committee of the joint venture, while the Boards remained attached to the individual partners.
When made, the FID triggers the project execution and in practice the EPC phase.
If the Final Investment Decision may have met some delays for whatever reasons, the EPC is always expected to be completed in the shortest lead time to production and commercial operations.
Interested in knowing more about Energy Projects?
2b1st Consulting is supporting companies working on Energy projects with data, expertise and network. Our experts have extensive knowledge of projects and have access to an unique granularity for all valves and pumps manufacturers.
If you want to know more about projects subscribe to our newsletter or contact us at Ask a demo
