Complex Projects Require Quality Thinking Time
Authors: Peters Marc 
Published: February 2015

Guest editorial

The upstream oil and gas industry is known for its massive and complex projects around the globe. Many projects are very profitable, but this is more a result of high oil and gas prices that have prevailed in the past decade rather than to good project management. There is in fact a tendency for E&P projects to underperform—managements overspend, deliver late, and underproduce compared with the original targets. Worldwide experience shows that this is predominantly because of poor project definition, poor uncertainty management, and, hence, poor decisions.

No doubt, exploration and production (E&P) projects are difficult to manage because they require coordinating and executing a vast array of activities at various levels of detail and complexity, such as technical evaluations, technology implementation, risk and uncertainty management, health and safety, economic evaluation, finance, contracting and procurement, governance, decision making, resourcing, planning and scheduling, stakeholder management, and societal responsibility. All the activities need to be aligned and integrated, which means that the people working the project and the stakeholders need to be aligned across discipline, functional (technical, economics, commercial, legal, and support functions), and company boundaries (governments, partners, and the public). This is a challenge to say the least.

The management of E&P projects is becoming even more challenging because the industry is faced with producing more difficult hydrocarbons to meet increasing global energy demand. Production is not only coming in more remote areas, in deep water, and in harsh conditions, but also in a more complex geology, from heavy oil to tight and sour gas, and from unconventionals. In addition, projects tend to be subject to stricter regulations and higher standards in order to prevent accidents or to contain the health, safety, and environmental consequences. All these require a greater understanding of the subsurface, the application of advanced technologies, compliance to stricter regulations, more investments, and more (experienced) people. 

Some E&P Learnings

The following E&P project learning examples are probably valid, to a lesser or greater extent, for any industry sector involved in complex, high capital spending business opportunities and projects.

A common complaint is that organizations tend to dive in without properly considering what the opportunity is about. They do not look at a wide enough variety of scenarios: Projects carry optimistic base case assumptions and/or narrow ranges in the outcome of the key uncertainties (e.g., reservoir properties or circumstances with an uncertain outcome could change the field development concept). Also the project management may not consider a sufficiently wide range of concepts and sometimes specific field development alternatives are overlooked.

Project economics often do not sufficiently reflect the specific risks and uncertainties. The cost estimates are not transparent or appear to be largely based on historical costs models that do not take into account future projections related to the buoyant/overheated market, and cost contingencies may be based on standard percentages.