Megaproject definition: A capital investment project with a total installed cost in excess of $1 billion USD with complex stakeholder arrangements.
The effects of volatile and low oil prices vary along the value chain and are being most acutely felt upstream with all national oil companies (NOCs) and international oil companies (IOCs) revising their capital investment schemes downwards.
For those capital projects that do go forward, one fact stands out: megaprojects tend to underperform more often than not. According to independent and empirical studies by Ernst & Young and the I.P.A., approximately 64% exceed their control budget and over 70% experience schedule delays. It is therefore necessary for the oil and gas industry to examine the underlying reasons for this disappointing failure in order to achieve predictable outcomes on investments.
While it would seem relatively straightforward that the proper deployment of traditional, proven, project management techniques with suitably qualified, experienced personnel should keep megaprojects on track, this has not proven to be the case. Even when companies use best practices, employ risk assessment models and proven scope definition assessment methods, megaprojects often fail to achieve their objectives.
Achieving a ‘bigger bang for your buck’ – improving the cost base of future investment and reducing the project life cycle to achieve beneficial operation in shorter periods – is a factor in optimizing efficiency. However, there are many challenges that arise on megaprojects that may not be found on single investments of a lesser value due to the complexity of most megaproject investments.
Recognizing the enormous amount of capital dollars at stake and the prevailing trend towards poor performance, my presentation at ADIPEC 2016 on November 9th in Abu Dhabi will address the type of changes needed in project development and execution to increase the likelihood of success on megaprojects.
John Jeffers is Group Director, Oil & Gas for SNC-Lavalin based in Abu Dhabi. He has over 25 years’ experience in the Oil & Gas and Petrochemicals sector. His experience spans engineering design, project management and operations and his early career involved him in the full life cycle of building of modules and jackets for the offshore sector.
He is a fellow of the Institute of Directors, a full member of the Association of Project Management (APM) and holds an MBA including the management of major projects.