Study: Upstream project delivery improving
Execution of upstream oil and gas projects is improving, says a new study by Wood Mackenzie.
Midsize to large projects in growing numbers have been delivered on target during the past 12 months.
“This includes areas previously notorious for cost blowouts, such as the Arctic and Caspian,” according to a WoodMac news release. “Examples of improved execution include deep water (BP’s West Nile Delta and Atoll, Eni’s Zohr and Cape Three Points), LNG (Novatek’s Yamal), shallow-water gas (BP’s Shah Deniz Phase 2), and subsea tie-backs such as Woodside’s Persephone and Wintershall’s Maria.”
More recently, Shell brought onstream Kaikias oil and gas field in the Gulf of Mexico, with four wells completed subsea in 4,500 feet of water tied back to the Ursa hub, nearly a year ahead of schedule.
WoodMac says Kaikias “epitomises how the deep-water sector has – for now – transitioned to a simpler, lower-cost business model.”
The consultancy notes that the oil-price slump which began in 2014 forced companies to improve management of major capital investments.
Late delivery and cost overruns had become so routine that “the top 15 project blowouts of the last decade were a cumulative US$80 billion over budget.”
According to Angus Rodger, WoodMac research director, over the last decade of project delivery, “the average development started up six months later than planned and US$700 million over budget.”
What has improved?
WoodMac identified these recent improvements in project execution:
- Spare capacity through the supply chain, which improves performance and lowers cost. For example, drilling efficiency has “improved dramatically” in some basins, such as the Gulf of Mexico and presalt play off Brazil
- Service-sector collaboration and alignment on contracts, “albeit mostly in northern Europe”
- Improved project management. “Companies have more people looking at fewer things, while underutilised service companies can offer their ‘A-team’ for each major contract”
- Greater corporate discipline. Tougher screening before final investment decisions (FIDs) and more-stringent hurdle rates have increased attention on execution and cost control
- More pre-FID planning. “More contracts are ‘signed and sealed’ presanction, often with preferred partners versus putting everything out to bid”
- Reduced scope. There are more tie-backs and brownfield projects using existing infrastructure and fewer greenfield projects.
Return to scale
WoodMac notes that some improvement in project delivery stems from de-emphasis by large companies on megaprojects but says, “This is not sustainable longer term in an industry underpinned by large, cash-generative assets.”
The consultancy sees “clear signs companies are reengaging with giant, capital-intensive projects” involving LNG, citing new developments in Canada, Mozambique, Qatar, Papua New Guinea, Russia, and Australia.
Mr Rodger points to “a looming wave of big pre-FID LNG developments building on the horizon, all aiming for sanction between 2018 and 2020.”
He noted “a step change” over the next 18 months from a lull in LNG sanctions and megaprojects in general “will be the real test of whether the industry has addressed the issue of poor delivery.”
Source: Oil & Gas Journal