A recent report by EY, “Oil and gas megaproject development – project development to FID”, looks at what the industry should be doing to address project development life cycle problems where 64% of projects are over budget and 73% over schedule. It is a trend, they claim, which has been made worse by increasing project size, complexity of technical design, low oil prices, and geographical and political uncertainty. Additionally, low oil prices has resulted in more sensitivity to costs and investment risks. This requires better oversight of oil and gas projects.
Given these challenges, companies and projects leaders are questioning whether they have enough “oversight over, capability within or efficiency to develop, sanction and execute projects that meet both hurdle rates and production demand.”
To address these challenges, EY then examines what can be done to address this through Oversight, Capability, and Efficiency.
- To gain better Oversight over project targets and performance, increased transparency over key decisions, project performance for stakeholders is required. More effective governance over project portfolios is also needed to ensure the most optimum projects are invested in.
- To build Capability to develop and execute projects, proficiency to manage front-end engineering (FEED) and contractors is needed. Man hour requirements also need to be met across the portfolio.
- To develop and execute projects with greater Efficiency, project development costs must be reduced while maintaining or improving quality. The interactions with contractors and suppliers must be improved through better collaboration in FEED work and detailed design. More consistency of equipment across projects should also be employed.
EY proposes that companies improve oversight by employing better Governance and Assurance. Better oversight is required to drive performance and to increase stakeholder value throughout the project lifecycle; this is especially true as schedules and budgets become leaner. According to EY, “Assurance and governance frameworks drive integrated team activities and common goals and a clear delineation of responsibilities for all.”
- Bias / optimism of project teams who can underestimate costs and ability to deliver can be controlled.
- In companies where Governance has been employed with risk management and robust economic planning, the whole life asset performance has improved 15 to 30%.
- Companies are establishing improved portfolio management and governance models capable of managing increasingly complex and changing portfolios.
- Common governance models improve working relationships and results in joint ventures.
- EPC’s can be better integrated within project teams to find ways of controlling costs, increasing productivity. The current approach is adversarial and is only targeting small costs within the EPC.
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